Which Anomalies are More Popular? And Why?

Abstract:     
We document and discuss cues that drive arbitrageurs’ behavior. In particular, we test, for a wide set of anomalies, whether arbitrageurs trade on anomalies, which anomalies attract the most arbitrage efforts, and what this reveals about arbitrageurs’ decision-making process. Arbitrage involvement is inferred via changes in short interest when a security falls into the “short leg” of an anomaly strategy. We provide evidence that arbitrageurs flock to high-volatility strategies and that this behavior is influenced by the convexity in fee structure common in the investment industry. Anomaly popularity also relates to the corresponding anomaly being discussed in academic outlets.

Number of Pages in PDF File: 42

Keywords: Arbitrageur Behavior, Incentive Effects of Contracts

JEL Classification: G11, G12, G14

working papers series