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Real Anomalies
Author(s) -
van BINSBERGEN JULES H.,
OPP CHRISTIAN C.
Publication year - 2019
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12771
Subject(s) - persistence (discontinuity) , economics , capital asset pricing model , investment (military) , tobin's q , econometrics , asset (computer security) , value (mathematics) , monetary economics , capital (architecture) , alpha (finance) , financial economics , economy , mathematics , statistics , computer science , geography , geology , geotechnical engineering , computer security , archaeology , politics , political science , law , cronbach's alpha , service (business)
We examine the importance of cross‐sectional asset pricing anomalies (alphas) for the real economy. To this end, we develop a novel quantitative model of the cross‐section of firms that features lumpy investment and informational inefficiencies, while yielding distributions in closed form. Our findings indicate that anomalies can cause material real inefficiencies, which raises the possibility that agents who help eliminate them add significant value to the economy. The model shows that the magnitude of alphas alone is a poor indicator of real outcomes, and highlights the importance of the alpha persistence, the amount of mispriced capital, and the Tobin's q of firms affected.