Anomaly

A term describing the incidence when the actual result under a given set of assumptions is different from the expected result. An anomaly provides evidence that a given assumption or model does not hold in practice. The model can either be a relatively new or older model.

Anomalies often occur with respect to asset pricing models, in particular the capital asset pricing model (CAPM). Although the CAPM was derived by using innovative assumptions and theories, it often does a poor job in predicting stock returns. The numerous market anomalies that were observed after the formation of the CAPM helped form the basis for those wishing to disprove the model.

Although the model may not hold up in empirical and practical tests, that is not to say that the model does not hold some utility.


Investment dictionary. . 2012.

Synonyms:

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  • Anomaly — A*nom a*ly, n.; pl. {Anomalies}. [L. anomalia, Gr. ?. See {Anomalous}.] 1. Deviation from the common rule; an irregularity; anything anomalous. [1913 Webster] We are enabled to unite into a consistent whole the various anomalies and contending… …   The Collaborative International Dictionary of English

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  • anomaly — *paradox, antinomy …   New Dictionary of Synonyms

  • anomaly — [n] deviation from normal, usual aberration, abnormality, departure, deviation, eccentricity, exception, incongruity, inconsistency, irregularity, oddity, peculiarity, rarity, unconformity, unorthodoxy; concept 647 Ant. conformity, normality,… …   New thesaurus

  • anomaly — ► NOUN (pl. anomalies) ▪ something that deviates from what is standard or normal …   English terms dictionary

  • anomaly — [ə näm′ə lē] n. pl. anomalies [L anomalia < Gr anōmalia, inequality: see ANOMALOUS] 1. departure from the regular arrangement, general rule, or usual method; abnormality 2. anything anomalous 3. Astron. a measurement used for any orbiting body …   English World dictionary

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