‘Smart’ Money Blunts Mispricing
A large body of evidence demonstrates the persistence of numerous anomalies in stock prices, which suggests they can depart from fundamentals for periods of time. The anomalies include:
- Failure Probability: Stocks with a high probability of failure have lower future returns.
- O-score: Stocks with higher O-scores (a higher probability of bankruptcy) have lower future returns compared with stocks with lower scores.
- Net Stock Issuances: The stocks of firms that issue equity underperform the stocks of nonissuers.
Read the rest of the article on ETF.com.