What Useful Alphas?

Andrew Y. Chen; Ivo Welch

What Useful Alphas?

General Finance 2026-07-07 v1

Authors: Andrew Y. Chen , Ivo Welch

Abstract

This paper examines about 200 published long-short anomaly equity portfolios (Chen and Zimmermann, 2022). Over the period through 2005 (December 2005 and earlier) and across all stocks, their median zero-investment return was an impressive 48 bp per month. Using only post-2005 years (January 2006 onward) reduces this to 19 bp. Using only "non-micro" top-3,000 stocks in the top 90% of market capitalization reduces this to 26 bp. Using only post-2005 and non-micro stocks reduces this to 7 bp. Even modest allowances for luck or transaction costs would have eliminated even these 7 bp. The evidence strongly suggests that published academic anomalies have been useless to non-micro-cap portfolio managers in the 21st century. Public stock markets were very efficient.

Cite

@article{arxiv.2607.06502,
  title  = {What Useful Alphas?},
  author = {Andrew Y. Chen and Ivo Welch},
  journal= {arXiv preprint arXiv:2607.06502},
  year   = {2026}
}