Question
Kim Deal, an equity researcher working at AMBS hedge fund in New York, U.S, has developed a clever way of measuring operating efficiency (OE) of
Kim Deal, an equity researcher working at AMBS hedge fund in New York, U.S, 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 laims that HMLOE 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.
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