Stats › Tradeable patterns › Sentiment conditioning
Anomalies pay after high sentiment, and all of it is on the side you cannot easily trade
| Anomaly | High minus low sentiment | t |
|---|---|---|
| Failure probability | 1.96% | 2.72 |
| Return on assets | 1.50% | 2.74 |
| Distress score | 1.40% | 2.85 |
| Net stock issues | 1.02% | 4.20 |
| Momentum | 0.93% | 1.64, not significant |
| Combination of all eleven | 0.93% | 4.25 |
| Asset growth | 0.85% | 2.37 |
| Net operating assets | 0.83% | 2.84 |
| Composite equity issues | 0.79% | 2.46 |
| Total accruals | 0.70% | 1.88 |
| Gross profitability | 0.50% | 1.53, not significant |
| Investment to assets | 0.30% | 1.06, not significant |
Difference in monthly long short excess returns following high against low readings of a composite sentiment index. Sentiment measured July 1965 to December 2007 and anomaly returns August 1965 to January 2008. Four of the eleven individual anomalies are not significant on their own; the combination is. Standard errors are heteroskedasticity consistent.
Across eleven anomalies, long short spreads following high sentiment exceed those following low sentiment by 0.93 per cent a month with a t statistic of 4.25. Decomposed, the short leg contributes all of it and the long leg none.
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