Why investors should be cautious of the academic approach to testing for stock market anomalies

Abstract

This paper uses the well known pre-holiday stock market anomaly to clarify the uses and limitations of the academic approach to testing for such anomalies with respect to the differing requirements of academics and investors. The approach is not designed to produce information suitable for making investment decisions but to inform academic debate. The results produced by the approach could lead to highly inappropriate trading if acted upon by investors. The paper illustrates the types of problem that can arise and offers some possible solutions.

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