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Dynamic asset (mis)pricing: Build-up versus resolution anomalies

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  • van Binsbergen, Jules H.
  • Boons, Martijn
  • Opp, Christian C.
  • Tamoni, Andrea

Abstract

We classify asset pricing anomalies into those exacerbating mispricing (build-up anomalies) and those resolving it (resolution anomalies). We estimate the dynamics of price wedges for well-known anomaly portfolios and map them to firm-level mispricings. We find that several prominent anomalies like momentum and profitability further dislocate prices. Multi-factor models designed to eliminate one-month alphas still produce large price wedges. Our estimates yield a novel decomposition of Tobin’s q, revealing that q’s mispricing component has substantial explanatory power for firm investment. Overall, our results suggest that financial intermediaries chasing build-up anomalies negatively affect price efficiency and associated real capital allocation.

Suggested Citation

  • van Binsbergen, Jules H. & Boons, Martijn & Opp, Christian C. & Tamoni, Andrea, 2023. "Dynamic asset (mis)pricing: Build-up versus resolution anomalies," Journal of Financial Economics, Elsevier, vol. 147(2), pages 406-431.
    • Handle: RePEc:eee:jfinec:v:147:y:2023:i:2:p:406-431
    DOI: 10.1016/j.jfineco.2022.11.005
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    More about this item

    Keywords

    Mispricing; Price wedges; Tobin’s q; Real misallocation;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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