Working Paper: NBER ID: w23238
Authors: Jules H. van Binsbergen; Christian C. Opp
Abstract: We examine the importance of asset pricing anomalies (alphas) for the real economy. We develop a novel quantitative model with lumpy investment that features such informational inefficiencies and yields closed-form solutions for cross-sectional distributions of firm dynamics. Our findings indicate that anomalies can cause material real inefficiencies, raising the possibility that agents that help eliminate them can provide significant value added to the economy. The framework reveals that alphas alone are poor indicators of real distortions, and that efficiency losses depend on the persistence of alphas, the amount of mispriced capital, and the Tobin's q of firms affected.
Keywords: Asset Pricing; Anomalies; Investment; Real Economy
JEL Codes: D22; D24; D53; D92; E22; G2; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| informational inefficiencies (alphas) (G14) | significant real inefficiencies in investment decisions (G11) |
| asset pricing anomalies (G12) | overinvest or underinvest based on mispriced capital (G31) |
| inflated prices (E31) | overinvest in physical capital (E22) |
| persistence of alphas (C69) | magnitude of real distortions (C51) |
| persistent mispricings (G19) | more substantial efficiency losses (H21) |
| cross-sectional variation in investment growth (E20) | future abnormal stock returns (G17) |