Abstract

http://ssrn.com/abstract=901075
 
 

References (36)



 
 

Citations (12)



 


 



The Limits of the Limits of Arbitrage


Alon Brav


Duke University - Fuqua School of Business

J.B. Heaton


Independent; Bartlit Beck Herman Palenchar & Scott LLP

Si Li


Wilfrid Laurier University - School of Business & Economics

June 14, 2006

Review of Finance, Forthcoming

Abstract:     
We provide evidence that the limits of arbitrage approach cannot explain economically important asset pricing anomalies. Anomalous positive stock returns (to small firms, value firms, recent winners, and firms with positive abnormal earnings announcements) are strongest when limits to arbitrage are lowest, directly contrary to the prediction of theories resting on limits to arbitrage. Anomalously poor returns to small growth stocks do occur only when limits to arbitrage are high, consistent with theories resting on limits to arbitrage, but affects less than 1% of the market value of the CRSP universe of United States common stocks.

Number of Pages in PDF File: 35

Keywords: Market Efficiency, Behavioral Finance, Limits on Arbitrage, Idiosyncratic Volatility

JEL Classification: G11, G12, G14

Accepted Paper Series


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Date posted: July 12, 2006  

Suggested Citation

Brav, Alon and Heaton, J.B. and Li, Si, The Limits of the Limits of Arbitrage (June 14, 2006). Review of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=901075

Contact Information

Alon Brav (Contact Author)
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-2908 (Phone)
919-684-2818 (Fax)
J.B. Heaton
Independent
No Address Available
Bartlit Beck Herman Palenchar & Scott LLP ( email )
Courthouse Place
54 West Hubbard Street
Chicago, IL 60610
United States
312-494-4425 (Phone)
312-494-4440 (Fax)
Si Li
Wilfrid Laurier University - School of Business & Economics ( email )
Waterloo, Ontario N2L 3C5
Canada
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