Market Anomaly

Which of the following correctly identifies a market anomaly?

Stocks with high P/E ratios outperform stocks with low P/E ratios.
Stocks of small firms outperform stocks of large firms.
Stocks rated “5” by Value Line outperform stocks rated “1”.
Stocks followed by financial analysts outperform those that are neglected.

B is the answer. The small-size-firm effect shows that stocks of small firms have outperformed stocks of large firms over long periods of time. A is incorrect. Stocks with low P/E ratios outperform stocks with high P/E ratios. C is incorrect. Stocks rated "1" by Value Line outperform stocks rated "5". D is incorrect. Neglected stocks outperform those followed closely by many financial analysts.

Posted in CFP® Practice Question

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