1.1. Time Series Anomalies/ Calendar Anomalies
1.1.1. The January Effect
According to this anomaly, there is a tendency for security prices to recover in January after the tax-related selling is completed before the year-end.
1.1.2. Turn-of-The-Month-Effect
As per this anomaly, there are higher returns on the last trading day and the first three days of the next month.
1.1.3. Day-of-Week-Effect
According to this anomaly, the average returns on Mondays are less than 0 and also lower than the other four trading days.
1.1.4. Holiday Effect
According to this anomaly, the day prior to holidays provides higher returns.
1.1.5. Over Reaction Anomaly
There is a belief that investors tend to overreact to the release of unexpected new information. Thus, any good news inflates the prices and bad news depresses them. So this anomaly suggests the use of a contrarian strategy, to earn abnormal gains.
1.1.6. Momentum Anomalies
According to this anomaly, the momentum in the trends continues for some days. Thus, the securities that have outperformed in the short run continue to outperform.
1.2. Cross-Sectional Anomalies
1.2.1. Size Effect
According to this anomaly, the small-cap equities tend to outperform the large-cap equities on a risk-adjusted basis.
1.2.2. Value Effect
This anomaly states that the value stocks tend to outperform the growth stocks over time.
However, the use of Fama-Fench’s ‘Three-Factor Model’ that uses market returns, the market value of equities, and the ratio of book value to the market value for valuation, eliminates this anomaly.
1.3. Other Anomalies
1.3.1. Close-End Fund Discounts
The close-ended funds usually trade at a huge discount to their net assets value. And, this is considered a kind of anomaly, as the price should reflect the net asset value of the constituent securities. These discounts are generally not worth the transaction cost that would be incurred if all the underlying constituent securities were otherwise purchased and sold.
1.3.2. Earnings Surprises
There may be surprise gains or losses in the companies, but the prices are slow to adjust. This creates an anomaly making the scope for the abnormal risk-adjusted gains.
1.3.3. IPOs
As per this anomaly, the prices at which the shares are offered at the initial offerings are generally lower than the fair price. Thus, abnormal returns can be earned if the shares can be obtained at the offer price.
1.3.4. Predictability of Return Based on Prior Information
This is more based on the economic cycle’s related information that gives a prior idea that during periods, there would be fall in interest rates, or increase in returns, etc. And predictions are made based on such information with regards to abnormal gains, etc.