There’s a paradox about equity investing. On the one hand, academic economists claim to have found dozens of ways of beating the market (or anomalies) based upon things such as momentum, good corporate governance or countless accounting items such as accruals or Piotroski F-scores. On the other hand, fund managers do not beat the market on average. The FCA has found that they “did not outperform their own benchmarks after fees”, something which is also true in the US.
How can we reconcile these apparently contradictory facts?
Campbell Harvey at Duke University has suggested one possibility. It’s that if you look hard enough you’ll find patterns in any data set. Such patterns won’t, however, be replicated in the future. Most so-called anomalies, he says, are “likely false”. (This isn’t a problem confined to economics: Professor Harvey was deliberately echoing a point made about medical research in 2005 by John Ioannides.)