Question
KD, an equity researcher working at BS hedge fund in New York, US, has developed a clever way of measuring operating efficiency (OE) of 100
KD, an equity researcher working at BS hedge fund in New York, US, has developed a clever way of measuring operating efficiency (OE) of 100 companies in China. Using historical data, Kim Deal forms 10 portfolios based on OE rankings, constructs a zero-cost portfolio (HML_OE), and finds spectacular $ average returns on HML_OE. Kim Deal claims that HML_OE is a new anomaly, and wants to convince her hedge fund boss to invest into HML_OE. However, her boss is not yet convinced and asks you to verify Kim's claim.
Critically evaluate Kim's claim on HML_OE. (appr. 500 words)
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