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What is a Market anomaly?

Market anomaly

Also referred to as a market inefficiency, a market anomaly is a distortion on the price and/or rate of return that contradicts the efficient-market hypothesis (EMH). Anomalies can be technical, fundamental or calendar-related.

Where have you heard about a market anomaly?

Market anomalies are common and are regularly reported in the media. For example, Marine Link recently reported how 'second-hand VLGC values have not come down as sharply as the freight market and are trading at a high multiple to vessel earnings'.

What you need to know about a market anomaly.

Since future stock prices follow a random walk pattern and are generally unpredictable, anomalies can appear, disappear and come back again without any warning. Anomalies can take many different forms including a smaller company outperforming a larger company, stocks becoming neglected and stocks with below-average price-to-book ratios outperforming the market. Another well-known anomaly is the January Effect, which relies on the idea that stocks that underperformed in the fourth quarter of the previous year tend to outperform the markets in January.

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