Anti-Matthew Effect
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The 'Matthew Effect' in Asset Returns: Winners and Losers from Entry
Fanis Papamichalis
- University of Oxford
Strategy in a nutshell
This strategy trades CRSP stocks using data from WRDS, Compustat, and NIPA. Markups are calculated as sales divided by cost of goods sold, adjusted by industry-specific output elasticity under a Cobb-Douglas specification. Stocks are double-sorted into quintiles by size (sales) and markups. The portfolio goes long on the largest size and highest markup quintile and short on the smallest size and lowest markup quintile. Positions are value-weighted and rebalanced annually.
Economic rationale
The strategy is grounded in demand elasticity and entry-cost dynamics. High-markup firms with inelastic demand can better withstand competition and resource shifts, especially under rising entry costs, producing higher expected returns. These conditions generate the “Anti-Matthew effect,” explaining muted size effects in recent markets.