Quants and market anomalies

• DOI: 10.1016/j.jacceco.2024.101688
• Publication Date: 2024-03-21T08:26:57Z
• Authors: Justin Birru; Sinan Gokkaya; Xi Liu; Stanimir Markov

Sell-side quantitative equity research analysts (Quants) conduct econometric analyses of stock returns to uncover market anomalies and assist institutional clients with selection. We present novel evidence that establishes their role in helping mutual fund discover capital markets evolve toward greater pricing efficiency. Specifically, we find access Quants make recommendations trades reveal knowledge anomalous cross-sectional return predictability. More importantly, predictability is weaker stocks have higher coverage (ownership) by (mutual clients) Quants, strengthens when quasi-exogenous brokerage house closures reduce the availability Quants.