The Real Effects of Market Inefficiency: Aggregate Versus Cross-Sectional Mispricing
34 Pages Posted: 24 Apr 2018
Date Written: April 4, 2018
We study the real cost of market inefficiency, distinguishing between two types of market inefficiency: aggregate and cross-sectional mispricing. We argue that the real cost of cross-sectional mispricing is more severe than that of aggregate mispricing. The aggregate mispricing has a relatively small cost because the wealth effect and the substitution effect tend to offset each other.
Keywords: Market Efficiency, Equilibrium Asset Pricing
JEL Classification: G12, G14
Suggested Citation: Suggested Citation