Return anomalies and economic fundamentals

Using a comprehensive dataset of portfolio returns, we study the relation between 185 stock market return anomalies and economic fundamentals. We find that 30 anomalies predict industrial production, while 29 predict the Chicago Fed National Activity Index. In cross‐sectional regressions, five macroeconomic factors related to economic growth, inflation, and interest rate spreads explain 50% or more of return spreads for 52 anomalies. However, multiple hypothesis tests suggest that the overall relationship between return anomalies and economic fundamentals is statistically insignificant. Within the Intertemporal Capital Asset Pricing Model (ICAPM) framework, the evidence supporting risk‐based explanations for the zoo of anomalies is even weaker.