Publication Type
Working Paper
Publication Date
1-2014
Abstract
Are anomalies strongest when limits of arbitrage are widely considered to be greatest? We empirically explore this theoretically deducted prediction. We first identify, categorize, and replicate 100 anomalies in the cross-section of expected equity returns. We then comprehensively study their dynamic interaction with popular proxies for time-varying market-level arbitrage conditions. Our findings reveal a surprisingly weak role of commonly employed measures of market-wide arbitrage risks and constraints. Even though this “big picture” evidence is by no means conclusive, our findings might potentially be best interpreted as supporting the growing literature which uncovers some shortcomings of the limits to arbitrage argument.
Keywords
anomalies, limits to arbitrage, return predictability, market frictions, behavioral finance
Discipline
Corporate Finance | Portfolio and Security Analysis
First Page
1
Last Page
41
Citation
JACOBS, Hieiko.
(2014). Research Collection BNP Paribas Hedge Fund Centre.
, 1.
Available at: https://ink.library.smu.edu.sg/bnp_research/37
Copyright Owner and License
Author
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Comments
Financial support from the BNP Paribas Hedge Fund Centre at SMU is gratefully acknowledged