Understanding Anomaly Discoveries

16 Pages Posted: 18 Apr 2017  

Julien Penasse

University of Luxembourg

Date Written: April 16, 2017

Abstract

Received wisdom suggests that when investors correct a mispricing, the return for trading against the mispricing disappears. This paper shows that the return should instead increase as prices adjust to eliminate the mispricing. The repricing returns are large; they correspond to the prior alpha times a duration term that depends on the persistence of the anomaly. I document evidence of repricing returns that went unnoticed in prior research.

Keywords: Anomalies, Cross-Sectional Return Predictability, Market Efficiency

JEL Classification: G00, G12, G14

Suggested Citation

Penasse, Julien, Understanding Anomaly Discoveries (April 16, 2017). Available at SSRN: https://ssrn.com/abstract=2953614 or http://dx.doi.org/10.2139/ssrn.2953614

Julien Penasse (Contact Author)

University of Luxembourg ( email )

4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg

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