Working Paper: CEPR ID: DP16353
Authors: Jules van Binsbergen; Martijn Boons; Christian Opp; Andrea Tamoni
Abstract: We classify asset pricing anomalies into those that exacerbate mispricing (build-up anomalies) and those that resolve it (resolution anomalies). To this end, we estimate the dynamics of price wedges for a large number of well-known anomaly portfolios in the factor zoo and map them to firm-level mispricings. We find that several prominent anomalies like momentum and profitability further dislocate prices. While mispricing buildup is often quick, the subsequent resolution tends to be slow, suggesting the potential for material real economic consequences. Our results suggest that financial intermediaries chasing build-up anomalies in fact negatively affect price efficiency andassociated real capital allocation
Keywords: dynamic price wedges; buildup; resolution; alphas; persistence
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| momentum and profitability (L25) | increased mispricing (G19) |
| speed of resolution (C69) | degree of misallocation of real capital (D29) |
| financial intermediaries chasing buildup anomalies (G23) | adverse economic outcomes (F69) |
| buildup anomalies (E32) | increased mispricing (G19) |
| resolution anomalies (D74) | decreased mispricing (G19) |