Do Anomalies Exist Ex Ante?

We use the dividend discounting model and the residual income model to estimate the expected returns of anomalies-based trading strategies. Except for price momentum, the dividend dis- counting model delivers precise expected return estimates that are largely similar in magnitude with the ex post average returns of zero-cost portfolios formed on book-to-market equity, com- posite issuance, net stock issues, abnormal investment, asset growth, earnings surprises, and failure probability. The residual income model produces substantially different expected return estimates, but they are dominated by the estimates from the dividend discounting model in predicting future cross-sectional variation of expected stock returns.