Market Anomalies

__Market anomalies__ describe situations where prices differ from their intrinsic values. This situation means that markets are not efficient. Why do you think investors are interested in market anomalies?

Well done! When prices differ from their intrinsic values, investors may be able to earn abnormal profits. Market anomalies describe situations where prices differ from intrinsic values in predictable ways which makes them particularly interesting to investors.

Incorrect. Research may be beneficial when there are market anomalies. This is because when prices differ from their intrinsic values, investors may be able to earn abnormal profits. Market anomalies describe situations where prices differ from intrinsic values in predictable ways which makes them particularly interesting to investors.

Because of the possibility of making abnormal profits, researchers and traders have spent a lot of time searching for anomalies. Sometimes anomalies are found by __data mining__, which is the search of results without a hypothesis. The danger of data mining is that the observed results may be specific to the sample or methods used and may not hold in the future. Why is this dangerous to investors looking to profit from anomalies?

Yes!

Incorrect. It may be true that others can find anomalies, but this is not a risk of data mining for investors.

In summary; [[summary]]

The real interest of investors is to earn abnormal profits, not just to identify mispricing. Because of this it is important to find real anomalies that hold in different periods and for different methods before trading.

Investors may earn abnormal profit from anomalies

Anomalies tell investors that research will not result in abnormal profits

Trading on anomalies that aren't real could result in poor performance

Others may find the anomalies and profit as well

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