Loyalists believe that the long-term patterns in returns are induced by institutional and/or research method problems such that the patterns are artificial and therefore not exploitable.Examples are:

A) changes in risk that are not accounted for when estimating abnormal returns
B) differences in firm size
C) problems in correctly estimating beta risk over different return intervals
D) all of these choices

Question

Loyalists believe that the long-term patterns in returns are induced by institutional and/or research method problems such that the patterns are artificial and therefore not exploitable.Examples are:

A) changes in risk that are not accounted for when estimating abnormal returns
B) differences in firm size
C) problems in correctly estimating beta risk over different return intervals
D) all of these choices

Quizplus · Accepted Answer

Loyalists believe that the long-term patterns in returns are induced by institutional and/or research method problems such that the patterns are artificial and therefore not exploitable.Examples are changes in risk that are not accounted for when estimating abnormal returns (Chan 1988,Jones 1993,Ball and Kothari 1989);differences in firm size,which drive the differential returns (Zarowin 1989,1990);problems in correctly estimating beta risk over different return intervals (Ball,Kothari and Shanken 1995);problems in estimating returns because of microstructure effects,particularly among the losers,which tend to be low-priced shares (Ball,Kothari and Shanken 1995);and problems in the benchmark return (Easton 1995).Each of these reasons appears to be capable of partially explaining the apparent overreaction.

Loyalists Believe That the Long-Term Patterns in Returns Are Induced