Price (In)efficiency wrt Firm-Specific Information and Anomalies.
46 Pages Posted: 8 May 2020 Last revised: 5 Jul 2023
Date Written: July 05, 2023
Abstract
I develop a Price Efficiency wrt Firm-specific Information (PEFI) measure motivated by the momentum theory literature and examine its relation with 205 momentum and other anomalies. The crossover interaction term between the anomaly variable and PEFI completely subsumes the return predictability of more than 70 percent of anomaly variables that still predict returns in recent data and significantly weakens the return predictability for an additional 10 percent. Results are stronger for last two decades. The empirical evidence suggests that incorrect incorporation of firm-specific information into prices lies at the core of the return predictability of most prevalent asset market anomalies.
Keywords: Momentum, Asset Retruns, Information Delay, Investor Phychology
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation