1980s, there came a volume of formal literature that discovered inefficiencies that could lead to abnormal returns if rigorously applied. The list includes size effect, January effect, value irregularities, momentum effect, etc. We called them anomalies1 and reverently acknowledged in the conclusion that these discoveries (1) were likely not repeatable in the future (now that we know them), (2) may be inconclusive because of potential “risk misspecification,” or (3) were lacking the proper allocation of costs in the strategy. In a modern quantitative process we call these anomalies “factors,”
...more
