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Disentangling Equity Return Regularities 85
CONCLUSION
Anomalies such as residual reversal and trends in analysts' earnings
estimates appear to be true pockets of stock market inefficiency. Other
effects, such as low P/E and small size, appear nonstationary; they
may be anomalous, or they might represent empirical return regula
ties only in a broader macroeconomic framework. The future holds
open the potential of uncovering new return regularities, as better databases
(such as real-time pricing) and greater computer power are
brought to task. At the same time, as however,
develop better ways
of measuring risk and newer asset pricing models, new theories wil
undoubtedly arise to fit the observed facts. will It be exating to observe
the progress on both fronts.
ENDNOTES
The authors thank The Dais Group, Interactive Data Corporation,
Institutional Brokers Estimate System (I/B/E/S), and Standard &
Poor's Compustat for data and systems support.
1. For a review of the anomaly literature, see Keim (1986b). See Fama
(1976) for a discussion of the CAPM and tests of market efficiency.
While still controversial, some recent research finds anomalies even
in an APT framework [Reinganum(1981b); Lehma~ and Modest
(1985); Chen, Copeland, and Mayers (1987); and Connor and
Korajczyk (1987)l. While Lehmann and Modest show that the sizerelated
rejection of APT is not an artifact of infrequent trading or
solely due to the month of January, they also find that the dividendyield
and own-variance effects not are anomalous in their AM
framework (while they are CAPM anomalies). Connor and
Korajczyk find APT performs better in explaining the January
seasonality in returns to small size, but no better than CAPM in non-
January months. Chen, Copeland, and Mayers show that size the
effect and Value Line enigmas are not explained by an APT
framework. Value Line uses a composite of several measures, such
as earnings surprise and price and earnings momentum. Gultekin
and Gultekin (1987) find that APT cannot explain January, size, or
sigma return regularities.