Question

question 1 : explain the following examples about anomalies:

- friday effect - stocks are generally underperforming on friday.

- size effect- large size companies provide with high rate of return.

- neglected stock provide high return.

- january effect - stocks are generally outperforming in january.

question 2: explain the following examples about reversal momentums:

A. Buying of shares who are trading at 52 week high.

B. Selling of shares who are trading at 52 week lows

C. Buying the outperformers and leaders and high price to earning ratio shares.

D. Buying out the Darvas stocks.

question3: explain the following examples about reversal:

A. Buying the stocks at support zones

B. Selling stocks at resistant zones

C. Buying shares in the bear market who those who are breaking moving averages on upside

D. Selling of shares in Bull market those who are breaking moving averages on downside.

Question4: give two more examples about anomalies, momentum, and reversal and explain them?

thank you

Answer 1

Answer: Question 1:

Friday effect

It's long been a puzzle: Standard economic theory predicts that when a company releases unexpected news about earnings, its stock price should immediately reflect the new information.

The weekend effect is a phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday.The weekend effect is also known as the Monday effect.

• The weekend effect is a phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday.
• The weekend effect is also known as the Monday effect.
• Although the cause of the weekend effect is debated, the trading behavior of individual investors appears to be at least one factor contributing to this pattern.
• Some theories that attempt to explain the weekend effect point to the tendency of companies to release bad news on a Friday after the markets close, which then depresses stock prices on Monday.     

Size Effect

Company size is an indicator to measure the size of company. For example, companies with large size tend to have good business continuity. It indicates that
large companies have a good performance.
Companies with good performance will be
able to generate profits, when the company
has got profit then the company will distribute
dividends to shareholders. This can affect
investors to prefer invest in large companies
than small companies. Smaller companies
tend to use their profits to expand their
business rather than using their profits to
share dividends to shareholders. Firm Size is
measured using Total Assets because Total
Assets is more stable than Total Sales. Total
Assets Value of a company is stable because
not every year the company makes a sale or
purchase Fixed Asset, while the Sales value
fluctuates every year.

Neglected Stocks

A close cousin of the "small-firm anomaly," so-called neglected stocks are also thought to outperform the broad market averages. The neglected-firm effect occurs on stocks that are less liquid (lower trading volume) and tend to have minimal analyst support. The idea here is that as these companies are "discovered" by investors, the stocks will outperform.

Many investors monitor long-term purchasing indicators like P/E ratios and RSI. These tell them if a stock has been oversold, and if it might be time to consider loading up on shares.

Research suggests that this anomaly actually is not true—once the effects of the difference in market capitalization are removed, there is no real outperformance. Consequently, companies that are neglected and small tend to outperform (because they are small), but larger neglected stocks do not appear to perform any better than would otherwise be expected. With that said, there is one slight benefit to this anomaly—through the performance appears to be correlated with size, neglected stocks do appear to have lower volatility.

January Effect

The January effect is a rather well-known anomaly. Here, the idea is that stocks that underperformed in the fourth quarter of the prior year tend to outperform the markets in January. The reason for the January effect is so logical that it is almost hard to call it an anomaly. Investors will often look to jettison underperforming stocks late in the year so that they can use their losses to offset capital gains taxes (or to take the small deduction that the IRS allows if there is a net capital loss for the year).1 Many people call this event "tax-loss harvesting."

As selling pressure is sometimes independent of the company's actual fundamentals or valuation, this "tax selling" can push these stocks to levels where they become attractive to buyers in January. Likewise, investors will often avoid buying underperforming stocks in the fourth quarter and wait until January to avoid getting caught up in the tax-loss selling. As a result, there is excess selling pressure before January and excess buying pressure after January 1, leading to this effect.