McGraw-Hill

84 selecting securities
of 9.7. The reader may wonder why this slope coefficient differs so
much from one; the answer in lies our use of a normalized historical
beta measure, which is scaled differently from the predictive, rawform
beta.
We noted previously that the purification of the low-P/E effect
caused its market-related component to dissipate. Similar diminution
occurred for the market sensitivity of zero yield, cash/price,
and co-skewness. The market sensitivities of the low-price and
book/price measures actually reverse sign when purified. Unlike
their pure counterparts, nake anomalies are clearly unsuitable for
beta prediction, because they serve as proxies for each other and
their market sensitivities are not additive.
A comparison of the nayve and pure anomaly intercepts in Table
2-4 with the average monthly anomaly returns in 2-1 Table indicates
that the statistically significant anomalies are generally robust
to market-return adjustment. For example, the pure saledprice intercept
is 15 basis points, with a t-statistic of 3.4, while the nake
monthly average return is 17 basis points, with a t-statistic of 3.7.
This similarity holds despite the statistically significant slope coe
cient for pure sales/price.
Also, our earlier findings on the pure January seasonality of
various anomalies are robust to market-return adjustment. In fact,
our results become more conclusive for the relative-strength measure.
Earlier, we found the difference between January' and non-
January returns to be in the expected direction, but not statistically
significant. However, once we adjust for the average excess market
return in January of 2.3 percent, the difference between January and
non-January intercepts is significant at the 1 percent level. This further
supports our contention that negative pure returns to relative
strength in January arise from profit taking associated with tax-ga
deferral.
As we indicated earlier, the presence of equity return regularities
calls'into question the EMH and current asset pricing models,
including the CAPM and APT. Also, the existence of significant
pure anomaly intercepts, in the time-series regressions of anomaly
returns on excess market returns, raises questions about the va
of a multifactor CAPM.6l