Which of the following is considered an effect that EMH does not explain?

The size effect is often described as a phenomenon where smaller companies (in terms of market capitalization) tend to outperform larger companies over time, particularly on a risk-adjusted basis. This observed trend can be considered an anomaly with respect to the Efficient Market Hypothesis (EMH), which asserts that stock prices already reflect all available information. If the market is truly efficient, it would be expected that size as a variable should not consistently yield abnormal returns after accounting for risk.

In contrast, the volatility clustering effect, trends in corporate profits, and the influence of media on stock prices can be explained within the framework of EMH, as they relate to information dissemination and the resulting market reactions. For instance, volatility clustering reflects the tendency for periods of high volatility to be followed by high volatility, which can be attributed to market overreactions to new information. Similarly, corporate profit trends and media influence are correlated with how information is absorbed by the market, which aligns with EMH principles about information efficiency.

Thus, the size effect stands out as an anomaly that does not fit easily into the EMH framework, making it the effect that EMH does not explain effectively.