Utilizing Market Anomalies in Active Equity Investing

As an equity portfolio manager at a mid-sized investment firm, you have been tasked with evaluating the potential for passive versus active investment strategies in light of market anomalies. Recent studies have highlighted various market anomalies, such as the size effect, value effect, and momentum effect, which challenge the efficient market hypothesis (EMH).

Your firm intends to implement an active equity investment strategy that seeks to capitalize on these anomalies. In your essay, address the following:

1. Define market anomalies and discuss their implications for active equity investing.
2. Choose two specific market anomalies and provide empirical evidence supporting their existence.
3. Explain how your firm could construct an active investment strategy that takes advantage of these anomalies, considering risks and limitations associated with active management.
4. Conclude with your perspective on the sustainability of these anomalies in the long term and their potential impact on investment performance.