[steephills]

Taking EPS as proxy for alpha is like trying to recognise banana pictures by looking at average yellow content: it is plausible, but roughly 100 years behind the other market participants. Don't do this kind of stuff with your hard earned money...

[DSingularity]

He was using that as a simple example.

[steephills]

Yes, I just wanted to make a point: things that have names, that have a paper written about them, that have Wikipedia pages or even Nobel prices attached to them are in the same category. The market has priced them in decades ago.

Thinking you can read Fama papers to take on quant funds, like smabie is claiming at several places in this thread, is like reading Commodore manuals to take on AlphaGo.

[perl4ever]

I feel like I've read something recently about how there's evidence people don't actually read SEC filings.

It's kind of like the theory that open source doesn't have serious bugs because so many people read it.

You know the saying that the market can remain irrational longer than you can remain solvent? If some people don't care about doing simple analysis, and others assume that someone else is doing it, and still others accept that it's useless to do it if other people aren't, it seems like a none-too-efficient market can be a stable equilibrium.

[bobbiechen]

Similarly, the book The Big Short (Michael Lewis) notes that hedge fund manager Michael Burry read hundreds of prospectuses for mortgage bonds in the years leading up to 2008 and was "certain even then [in 2005] (and dead certain later) that he was the only human being on earth who read them, apart from the lawyers who drafted them." He ended up shorting these and profiting hundreds of millions of dollars.

[smabie]

From my analysis, there's around a 3.9% abnormal return associated with a L/S beta neutral low beta strategy (long low beta, short high beta). It's Sharpe ratio is ~1, though. 3.9% is pretty significant, especially since the beta correlation is less than 2%.

There's a reason why these factors are called "persistent." For systemic reasons, it is hard to arbitrage them away, mostly due to laws, and sometimes tax implications.