Anomalies enhanced: A portfolio rebalancing approach. Issue 2 (18th August 2020)

• Record Type: Journal Article
• Authors: Han, Yufeng; Huang, Dayong; Zhou, Guofu
• Is Part Of: Financial management. Volume 50:Issue 2(2021)
• Page Start: 371
• Page End: 424
• Publication Date: 2020-08-18
• Subjects: Return anomalies -- monthly rebalance -- performance enhancement -- dynamic trading -- technical analysis; Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12329
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract: Many anomalies are based on firm characteristics and rebalanced yearly ignoring any information during the year. In this paper, we provide two dynamic trading strategies to rebalance anomaly portfolios monthly. For eight major anomalies, we find that dynamic trading strategies substantially enhance their economic value with improvements in the Fama and French five‐factor alpha ranging from 0.40% to 0.75% per month. Our findings indicate that many well‐known anomalies can be more profitable than previously thought if managed with our dynamic trading strategies. This much improved performance, which relies on both the anomalies and the trading strategies, raises a new challenge for theoretical explanations.