We show that stock returns exhibit predictable patterns before the publication of anomaly trading signals. Moreover, anomaly trading signals derived from financial data are themselves predictable, making it possible to trade before financial statements are released. A trading strategy based on predicted anomaly signals earns an annualized return of 2.80% in the quarter before the signal is released. In recent periods, this return predictability is concentrated in signals that are harder to forecast, and returns are increasingly earned several quarters before signals are released. Our findings suggest anomalies are more anomalous than previously recognized.
|Plain Summary
A trading signal does not have to be public for markets to anticipate it. We show that many signals can be predicted before financial statements are released, and investors can earn returns by trading ahead of their publication.
Bowles, B., Reed, A. V., Ringgenberg, M. C., & Thornock, J. R. (2024). Anomaly time. The Journal of Finance, 79(5), 3543–3579. https://doi.org/10.1111/jofi.13372
Abstract
We examine the timing of returns around the publication of anomaly trading signals. Using a database that measures when information is first publicly released, we show that anomaly returns are concentrated in the first month after information release dates, and these returns decay soon thereafter. We also show that the academic convention of forming portfolios in June underestimates predictability because it uses stale information, which makes some anomalies appear insignificant. In contrast, we show many anomalies do predict returns if portfolios are formed immediately after information releases. Finally, we develop guidance on forming portfolios without using stale information.
|Plain Summary
When you form a portfolio matters. We show that returns from many investment signals arrive in the first month after the underlying information becomes public, then fade. Waiting until June to form portfolios misses much of that predictability.
Blau, B. M., Bowles, T. B., & Whitby, R. J. (2016). Gambling preferences, options markets, and volatility. Journal of Financial and Quantitative Analysis, 51(2), 515–540. https://doi.org/10.1017/S002210901600020X
Abstract
Despite assumptions of mean-variance efficiency that underlie most asset pricing models, investors have shown a penchant for positive skewness. This study documents that the ratio of call option volume relative to total option volume is greatest for stocks with return distributions that resemble lotteries. These results suggest that investors’ preferences for lottery-type stocks might be reflected in the level of call option volume. Perhaps, more importantly, we test whether these preferences affect future spot price volatility. Consistent with our expectation, we find that preferences for lotteries by call option traders directly affect future volatility in the underlying asset.
|Plain Summary
Some stocks resemble lottery tickets: a small chance of a large payoff. We find that call options account for a larger share of option trading on these stocks, and that investors’ preference for lottery-like payoffs affects future volatility in the underlying shares.
We infer firm connections from hedge funds' co-search behavior in EDGAR and find that connected firms exhibit strong return predictability: annual alpha is 8.16%. Moreover, this effect is strongest for firms with complex disclosures and sparse analyst coverage, consistent with models of limited attention. We also show that hedge funds frequently churn their network of firm connections---responding to news and capturing fleeting ties among firms---and actively trade based on these connections. These findings highlight a distinct view of firm connectedness and uncover a novel channel of information flow that hedge funds translate into consistent alpha.
|Plain Summary
Two firms can be connected by the investors researching them. We use hedge funds’ SEC filing downloads to identify those connections and show that they predict stock returns. The connections change frequently, and funds trade on them.
Using mutual fund holdings linked to EDGAR requests, we study how fund families research long and short positions. Among families with observable research activity, short positions outperform comparable longs by roughly 100 basis points per quarter and receive about 10% more EDGAR requests. We develop a model of information acquisition with short-side frictions that rationalizes greater research intensity and higher returns, and a sequential-sampling extension predicts, paradoxically, that more-researched shorts can earn smaller absolute returns. The evidence is consistent with this inverse relation: attention concentrates on borderline shorts, while clear winners require less research.
|Plain Summary
In our sample, mutual funds research their short positions more than their longs, and their shorts perform better. But more research does not always mean a larger gain: much of the effort goes to shorts that are harder to judge. Clearer opportunities need less investigation.
Factor models conventionally form portfolios annually using stale financial statements released months earlier. We construct fresh factors each month using the most recent annual financial statements. Fresh factors modestly improve pricing, but augmenting the stale model with the change in returns from updating stale portfolio assignments significantly improves pricing because the two components carry different pricing content. This reallocates abnormal returns, reverses the interpretation of thousands of event-study CARs, and reclassifies 14.7% of top-decile mutual funds. These findings reveal a fundamental structure in returns: a slow-moving component reflecting persistent fundamental risk and a fast-moving component capturing the arrival of information.
|Plain Summary
Standard factor models often use financial statements that are months out of date. We show that the original factor portfolio and the return change from updating it capture different parts of stock returns. Using both changes how we measure abnormal returns and evaluate mutual funds.
Identity-linked portfolio tilts in delegated management can reflect taste-based affinity or a comparative advantage in monitoring. Using gender alignment between U.S. mutual fund managers and CEOs, we show female-managed funds overweight female-CEO firms by 0.13 percentage points of TNA (about 5% of mean exposure), a tilt that rises after female-manager appointments. The taste-based channel predicts ESG co-tilts and return sacrifice; we find neither. Instead, the tilt is strongest for geographically proximate firms and is accompanied by fewer SEC filing downloads despite larger positions, consistent with substitution away from public-information acquisition toward a monitoring-based comparative advantage.
|Plain Summary
Female-managed mutual funds tilt their portfolios toward firms led by female CEOs. We find no evidence that this tilt sacrifices returns or reflects a broader preference for ESG stocks. Instead, the evidence is consistent with an advantage in monitoring those firms.
We develop a novel measure of effort based on unique observations of weekend work activity and revisit fundamental questions of asset management: how does effort relate to incentives, and how does effort affect performance? Mutual fund managers facing competitive incentives work more weekends, particularly following outflows and increased tracking error. Also, heightened effort predicts improved future returns -- especially among funds with competitive incentives, high active share, and low turnover -- and using exogenous variation in local weather we demonstrate a causal link between effort and returns. Finally, we show that the outperformance arises from a mixture of effort, targeted firm-research, and selectively trading the right stocks.
|Plain Summary
Weekend work gives us a way to measure fund managers’ effort. We find that managers work more when competitive pressure rises, and that greater effort improves returns. The gains come from researching firms and selectively trading the right stocks.
Bowles, B., Duch, R., & Sorescu, S. (2026). Talking to digital twins: Selective disclosure and belief measurement in financial social media. SSRN. https://papers.ssrn.com/abstract=7212519
Abstract
Social media affect financial markets, but public posts by financial media personas are voluntary disclosures. What is not disclosed is therefore usually unobserved. We address this measurement problem by conducting repeated, real-time interviews of "digital twins" built from monitored finfluencers' X accounts under a fixed protocol. The interviews recover stocklevel public-persona belief proxies even when no public recommendation is made. Because the interviews are generated and archived before the relevant return windows, the design avoids the look-ahead bias that arises when LLMs are queried ex post. The evidence shows that information obtained from these digital-twin interviews predicts the cross section of large-cap stock returns in the expected direction. Repeated real-time interviews therefore show how selective disclosure can be turned into measurable panels of market views.
|Plain Summary
Financial commentators choose which stock views to make public. We interview digital twins built from their social media accounts to measure views implied by their public personas, including stocks with no public recommendation. Recorded before the returns we study, these measures predict stock returns.