Financial experts argue for a great variety of investment strategies, but these approaches all have one thing in common: Once the word is out about them, their returns shrink. (CLICK BELOW TO READ MORE)
That's the finding of a couple of finance professors who looked at 82 market strategies—differences in valuations that gave investors a chance to profit and were then described in academic papers. In a working paper, the authors estimate that the average return decays after publication by about 35%.
This seems to happen mostly because investors learn about the strategy from the academic papers and trade on it, thereby diminishing the advantage (in keeping with the way markets are supposed to work). The effect is most pronounced, the professors write, with strategies focusing on stocks with large market capitalization, high-dollar-volume trading and dividends.
"Does Academic Research Destroy Stock Return Predictability?" R. David McLean and Jeffrey Pontiff, Social Science Research Network (October)
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