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‘Smart’ Money Blunts Mispricing

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A large body of evidence demonstrates the persistence of numerous anomalies in stock prices, which suggests they can depart from fundamentals for periods of time. The anomalies include:

  • Failure Probability: Stocks with a high probability of failure have lower future returns.
  • O-score: Stocks with higher O-scores (a higher probability of bankruptcy) have lower future returns compared with stocks with lower scores.
  • Net Stock Issuances: The stocks of firms that issue equity underperform the stocks of nonissuers.

Read the rest of the article on ETF.com.

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