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Assessing Assets Pricing Anomalies

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Author Info
Michael Brennan (Anderson School of Management)
Yihong Xia (University of Pennsylvania)
Abstract

The optimal portfolio strategy is developed for an investor who has detected an asset pricing anomaly but is not certain that the anomaly is genuine rather than merely apparent. He analysis takes account of the fact that the parameters of both the underlying asset pricing model and the anomalous returns are estimated rather than known. The value that an investor would place on the ability to invest to exploit the apparent anomaly is also derived an illustrative calculations are presented for the Fama and French SMB and HML portfolios, whose returns are anomalous relative to the CAPM.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1098&context=anderson/fin
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Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number 1098.

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Date of creation: 01 Jan 1999
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Handle: RePEc:cdl:anderf:1098

Note: oai:cdlib1:anderson/fin-1098
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rafael La Porta & Josef Lakonishok & Andrei Shleifer & Robert Vishny, 1995. "Good News for Value Stocks: Further Evidence on Market Efficiency," NBER Working Papers 5311, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  3. Gennotte, Gerard, 1986. " Optimal Portfolio Choice under Incomplete Information," Journal of Finance, American Finance Association, vol. 41(3), pages 733-46, July. [Downloadable!] (restricted)
  4. Feldman, David, 1992. "Logarithmic Preferences, Myopic Decisions, and Incomplete Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 619-629, December. [Downloadable!]
  5. Yihong Xia, 2001. "Learning about Predictability: The Effects of Parameter Uncertainty on Dynamic Asset Allocation," Journal of Finance, American Finance Association, vol. 56(1), pages 205-246, 02. [Downloadable!] (restricted)
  6. Barber, Brad M & Lyon, John D, 1997. " Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms," Journal of Finance, American Finance Association, vol. 52(2), pages 875-83, June. [Downloadable!] (restricted)
  7. Lubos Pastor & Robert F. Stambaugh, . "Comparing Asset Pricing Models: An Investment Perspective," Rodney L. White Center for Financial Research Working Papers 16-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
    Other versions:
  8. Brennan, Michael J. & Chordia, Tarun & Subrahmanyam, Avanidhar, 1998. "Alternative factor specifications, security characteristics, and the cross-section of expected stock returns1," Journal of Financial Economics, Elsevier, vol. 49(3), pages 345-373, September. [Downloadable!] (restricted)
  9. Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 95-101. [Downloadable!] (restricted)
  10. Reinganum, Marc R., 1981. "Misspecification of capital asset pricing : Empirical anomalies based on earnings' yields and market values," Journal of Financial Economics, Elsevier, vol. 9(1), pages 19-46, March. [Downloadable!] (restricted)
  11. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March. [Downloadable!] (restricted)
  12. Knez, Peter J & Ready, Mark J, 1997. " On the Robustness of Size and Book-to-Market in Cross-Sectional Regressions," Journal of Finance, American Finance Association, vol. 52(4), pages 1355-82, September. [Downloadable!] (restricted)
  13. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December. [Downloadable!] (restricted)
  14. Bernard, Victor L. & Thomas, Jacob K., 1990. "Evidence that stock prices do not fully reflect the implications of current earnings for future earnings," Journal of Accounting and Economics, Elsevier, vol. 13(4), pages 305-340, December. [Downloadable!] (restricted)
  15. Lo, Andrew W & MacKinlay, A Craig, 1990. "Data-Snooping Biases in Tests of Financial Asset Pricing Models," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(3), pages 431-67. [Downloadable!] (restricted)
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  16. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March. [Downloadable!] (restricted)
  17. Detemple, Jerome B., 1991. "Further results on asset pricing with incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 425-453, July. [Downloadable!] (restricted)
  18. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-55, March. [Downloadable!] (restricted)
  19. Kothari, S P & Shanken, Jay & Sloan, Richard G, 1995. " Another Look at the Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 185-224, March. [Downloadable!] (restricted)
  20. MacKinlay, A. Craig, 1995. "Multifactor models do not explain deviations from the CAPM," Journal of Financial Economics, Elsevier, vol. 38(1), pages 3-28, May. [Downloadable!] (restricted)
  21. Loughran, Tim, 1997. "Book-to-Market across Firm Size, Exchange, and Seasonality: Is There an Effect?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(03), pages 249-268, September. [Downloadable!]
  22. Williams, Joseph T., 1977. "Capital asset prices with heterogeneous beliefs," Journal of Financial Economics, Elsevier, vol. 5(2), pages 219-239, November. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yihong Xia, 2000. "Learning About Predictability: The Effects of Parameter Uncertainty on Dynamic Asset Allocation," University of California at Los Angeles, Anderson Graduate School of Management 1057, Anderson Graduate School of Management, UCLA. [Downloadable!]
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