1. Market anomalies refer to certain stock/firm characteristics that have predictive power for the cross-sectional stock returns and such predictability cannot be explained by the risk factors.

a) Briefly explain what the momentum and reversal anomalies are? When constructing stock return momentum, why do we usually exclude the most recent month (month t-1)?

b)Why do Fama and French consider the value effect as compensation for risk?

Ref for part b): https://rady.ucsd.edu/faculty/directory/valkanov/pub/classes/mfe/docs/fama_french_jfe_1993.pdf

Answer rating: 100% (QA)

a The momentum anomaly refers to the phenomenon where stocks that have performed well in the recent ... View the full answer