A recent Wall Street Journal article outlines findings of a research paper published earlier this year that challenges widely held beliefs about market “anomalies.”

According to the article, the researchers spent three years compiling and replicating 447 market anomalies that have been “identified in academic literature.” One of the main takeaways, it says, is that “most of the supposed market anomalies academics have identified don’t exist, or are too small to matter.” Others are as follows:

• The market is probably more efficient than you think: The researchers found that, of the anomalies analyzed, 54% could not be replicated. “For most investors,” the article says, “these results suggest we avoid the newest back-tested strategies hitting the market and focus on fairly generic low-cost broad-based index funds.”
• Two strategies that “held up” in the research were value and momentum, and simpler momentum strategies performed better than more complex approaches (such as those predicated on earnings surprises, for example).
• “Buying baskets of stock in small companies that are cheap (i.e. value) and have high returns on equity” generate the highest expected returns.
• Portfolio construction matters. The research shows that this may even drive performance more than underlying factors. In general, however, the evidence shows that small stocks perform better than large caps, equal-weighting is better than market-cap weighting, and more rebalancing is preferable to less.