Stock Market Anomalies and Baseball Cards * Joseph Engelberg Linh Le Jared Williams‡ August 2, 2017 Abstract: Baseball cards exhibit anomalies that are analogous to those that have been documented in financial markets, namely, momentum, price drift in the direction of past fundamental performance, and IPO underperformance. Momentum profits are higher among active players than retired players, and among newer sets than older sets. Regarding IPO underperformance, we find newly issued rookie cards underperform newly issued cards of veteran players, and that newly issued sets underperform older sets. The results are broadly consistent with models of slow information diffusion and short-selling constraints. * We thank Jack Bao, Justin Birru (discussant), Dan Bradley, Roni Michaely, Matthew Spiegel, and seminar participants at the University of South Florida and the Financial Intermediation Research Society meeting in Hong Kong (2017) for their useful feedback. ‡ Contact: Joseph Engelberg, University of California – San Diego, Rady School of Management, (Email)
[email protected] (Tel) 858-822-7912; Linh Le, University of South Florida, Muma College of Business, (Email)
[email protected]; and Jared Williams, University of South Florida, Muma College of Business, (Email)
[email protected]. 1 I. Introduction Basic financial theory predicts that stock returns should be unpredictable after adjusting for risks. That is, any abnormal returns earned by trading strategies are either due to random chance or they are compensation for risks that investors care about that are not captured by the asset pricing model. However, financial economists have documented the existence of simple strategies that earn unusually high or low returns despite the fact that the strategies do not load heavily on common risk factors.