Taking Sides on Return Predictability

48 Pages Posted: 20 Jul 2020

See all articles by R. David McLean

R. David McLean

Georgetown University - Department of Finance

Jeffrey Pontiff

Boston College - Department of Finance

Christopher Reilly

Boston College - Department of Finance

Date Written: June 28, 2020

Abstract

We study how 9 different market participants trade with respect to 130 different stock return anomalies and how each participant’s trades predict returns. Retail investors trade against anomalies, while firms’ and short sellers’ trades agree with anomalies. Institutional portfolios are weighted against anomalies, although some institutions’ trades agree with anomalies after the anomaly-measurement date. Retail trades predict returns in the wrong direction, firms’ and short sellers’ trades predict returns in the intended direction, institutional trades do not robustly predict returns. The return-predictability of trades by retail investors, firms and short sellers can be either mostly or completely explained by anomalies.

Keywords: Anomalies, Retail investors, Institutional investors, Short sellers, Hedge funds

JEL Classification: G10, G11, G14, G23

Suggested Citation

McLean, R. David and Pontiff, Jeffrey and Reilly, Christopher, Taking Sides on Return Predictability (June 28, 2020). Georgetown McDonough School of Business Research Paper No. 3637649, Available at SSRN: https://ssrn.com/abstract=3637649 or http://dx.doi.org/10.2139/ssrn.3637649

R. David McLean (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC Washington DC 20057
United States

Jeffrey Pontiff

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Christopher Reilly

Boston College - Department of Finance ( email )

Chestnut Hill, MA
United States

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