Which Anomalies are More Popular? And Why?
Purdue University - Krannert School of Management
Florida State University; Purdue University
March 29, 2013
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, G14working papers series
Date posted: August 30, 2012 ; Last revised: March 31, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
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