PostHeaderIcon Common Market Anomalies

The stock market is generally known as an unpredictable market. Even the most experienced analysts can also get it wrong in making market predictions. Traders and investors both try to squeeze out even the smallest percentage of gains they can. One other unique occurrence in stock markets is the presence of common market anomalies.

Market anomalies are certain occurrences that seem to confound the stock market players, both investors and traders alike. They seem to occur and then disappear and then reappear at any time, sometimes without further explanation. Here are some of the more common market anomalies that stock markets have been quite familiar with.

The January Effect

This type of anomaly is something that many people in the stock market know of. It seems that stocks known to have underperformed in the fourth quarter of last year tend to outperform the markets during the month of January.

Reversal Effect

In this anomaly, it is said that stocks that are found on either end of the spectrum may experience a reversal over certain period s of time, usually in about a year. This means that stocks that are outperforming the market may tend to reverse course in the next period. The underperformers, on the other hand may have the tendency to reverse direction and begin outperforming the market.

Days Of The Week Anomaly

One of the most persistent yet fundamentally confounding anomaly, The Days of the Week effect seem to frustrate many stock market players simply because it doesn’t seem to make sense and yet it happens. Stocks tend to move more on Fridays than on Mondays. The general market also seems to have a bias towards a positive performance during Fridays. Yet, the opposite becomes true by the time Monday comes.

Knowing these anomalies may certainly help traders and investors view the stock market in a perspective that it really can become quite unpredictable. But trying to take advantage of such market anomalies for gains may be quite risky. They seem to occur without any explanation. Basing a trading strategy on them would just make it even more difficult to determine whether one beats or gets beaten by the market.


One Response to “Common Market Anomalies”