Anomalies and Mutual Funds
Abstract
This study intends to answer have excess returns been theoretically available from trading on market anomalies during these funds existence, and have mutual funds that have implemented these trading strategies attained excess returns consistent with theoretical results. In this study, actual returns of mutual funds, which used trading strategies based on size, PE, and PB, were compared to theoretical returns based on the same strategies to estimate excess returns. Results suggest that size, PE, and PB anomaly factors are theoretically available for 20 years, however size anomalies seem to have disappeared in the last 10 years. In reality, the size anomaly is confirmed in practice and excess returns exist. PE and PB anomalies seem not effective in reality, and mutual funds based on PE and PB anomalies failed to successfully attain excess returns consistent with theoretical results.