Published stock anomalies that worked before 2005 now barely beat zero for large stocks.

Researchers often find stock trading rules, called anomalies, that seem to beat the market. These strategies buy certain stocks and sell others without investing cash upfront. The authors tested about 200 published anomaly strategies to see if they actually make money. Through December 2005, across all stocks, the median return was 48 bp per month. One bp, or basis point, is one hundredth of a percent. But when looking at January 2006 onward, that return dropped to 19 bp. Looking only at larger, non-micro stocksnon-micro stocksStocks of companies that are not extremely small, specifically the top 3,000 by market capitalization. dropped it to 26 bp. Combining both modern years and non-micro stocks shrank the return to just 7 bp. Accounting for modest luck or trading costs erases those last 7 bp, meaning these strategies were useless to modern managers.

Why it matters

For decades, investors and fund managers used academic research to pick stocks that beat the market. This paper shows that after 2005, those strategies stopped working for large, liquid stocks. After accounting for trading costs, the profits vanish entirely. That means relying on these published anomalies is no longer a viable investment strategy for most professional investors.

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