Dynamic Asset (Mis)Pricing: Build-up vs. Resolution Anomalies

63 Pages Posted: 18 Feb 2021

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Martijn Boons

New University of Lisbon - Nova School of Business and Economics

Christian C. Opp

University of Rochester - Simon Business School; National Bureau of Economic Research (NBER)

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: February 12, 2021

Abstract

We classify asset pricing anomalies into those that exacerbate existing mispricing (build-up anomalies) and those that resolve it (resolution anomalies). To this end, we compute the dynamics of price wedges for a large number of well-known asset pricing anomalies (the factor zoo). We find that several prominent anomalies like momentum and profitability push prices even further away from fundamental value. Generally, this mispricing build-up is faster than the subsequent resolution, suggesting the potential for material real economics consequences. Our results suggest that financial intermediaries chasing build-up anomalies in fact negatively affect price efficiency and associated real capital allocation.

Keywords: Dynamic Price Wedges, Build-up, Resolution, Persistence, Real Anomalies

JEL Classification: G11, G12, G14

Suggested Citation

van Binsbergen, Jules H. and Boons, Martijn and Opp, Christian C. and Tamoni, Andrea, Dynamic Asset (Mis)Pricing: Build-up vs. Resolution Anomalies (February 12, 2021). Available at SSRN: https://ssrn.com/abstract=3785040 or http://dx.doi.org/10.2139/ssrn.3785040

Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

Martijn Boons

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Christian C. Opp

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

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