Can Academic Research Generate New Anomalies?

63 Pages Posted: 18 Oct 2017 Last revised: 5 Nov 2018

See all articles by Alex R. Horenstein

Alex R. Horenstein

University of Miami - School of Business Administration - Department of Economics

Date Written: October 22, 2018

Abstract

This paper explores a channel whereby new anomalies can appear as investors alter portfolios suggested by the dissemination of academic knowledge. In particular, I find that assets with a low realized CAPM alpha outperform those with a high one. In a multifactor world the CAPM is misspecified. I find evidence that its widespread application since the 1960s and the multifactor literature that followed generated incentives for fund managers (and possibly other money managers) to tilt portfolios systematically towards high CAPM alpha. To do this, they must tilt portfolios away from low CAPM alpha assets, causing such assets to be undervalued.

Keywords: capital asset pricing model, liquidity, benchmarking, mutual funds, overreaction, smart beta, anomalies

JEL Classification: G10, G12

Suggested Citation

Horenstein, Alex R., Can Academic Research Generate New Anomalies? (October 22, 2018). University of Miami Business School Research Paper No. 18-5. Available at SSRN: https://ssrn.com/abstract=3054718 or http://dx.doi.org/10.2139/ssrn.3054718

Alex R. Horenstein (Contact Author)

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

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