Some investors seem to be having a difficult time making definitive decisions so far in 2023. Conventional wisdom holds that a long-term strategic allocation makes
Analysts’ price targets and recommendations contradict stock return anomaly variables. Using an index based on 125 anomalies, we find that analysts’ annual stock return forecasts are 11% higher for anomaly-shorts than for anomaly-longs. Anomaly-shorts’ return forecasts are excessively optimistic, exceeding realized returns by 34%. Recommendations also tend to be more
Using a sample of 97 stock return anomalies, we find that anomaly returns are 50% higher on corporate news days and are 6 times higher on earnings announcement days. These results could be explained by dynamic risk, mispricing via biased expectations, and data mining. We develop and conduct unique tests
Short sellers face unique risks, such as the risk that stock loans become expensive and the risk that stock loans are recalled. We show that short-selling risk affects prices among the cross-section of stocks. Stocks with more short-selling risk have lower returns, less price efficiency, and less short selling.