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Real Anomalies

Author

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  • Jules H. van Binsbergen
  • Christian C. Opp

Abstract

We examine the importance of asset pricing anomalies (alphas) for the real economy. We develop a novel quantitative model with lumpy investment that features such informational inefficiencies and yields closed-form solutions for cross-sectional distributions of firm dynamics. Our findings indicate that anomalies can cause material real inefficiencies, raising the possibility that agents that help eliminate them can provide significant value added to the economy. The framework reveals that alphas alone are poor indicators of real distortions, and that efficiency losses depend on the persistence of alphas, the amount of mispriced capital, and the Tobin's q of firms affected.

Suggested Citation

  • Jules H. van Binsbergen & Christian C. Opp, 2017. "Real Anomalies," NBER Working Papers 23238, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23238
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    References listed on IDEAS

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    1. Christopher A. Hennessy & Toni M. Whited, 2007. "How Costly Is External Financing? Evidence from a Structural Estimation," Journal of Finance, American Finance Association, vol. 62(4), pages 1705-1745, August.
    2. 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.
    3. Joel M. David & Hugo A. Hopenhayn & Venky Venkateswaran, 2016. "Information, Misallocation, and Aggregate Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 131(2), pages 943-1005.
    4. Peters, Ryan H. & Taylor, Lucian A., 2017. "Intangible capital and the investment-q relation," Journal of Financial Economics, Elsevier, vol. 123(2), pages 251-272.
    5. Michael J. Cooper & Huseyin Gulen & Michael J. Schill, 2008. "Asset Growth and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1609-1651, August.
    6. Matthew Baron & Wei Xiong, 2017. "Credit Expansion and Neglected Crash Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 132(2), pages 713-764.
    7. R. David Mclean & Jeffrey Pontiff, 2016. "Does Academic Research Destroy Stock Return Predictability?," Journal of Finance, American Finance Association, vol. 71(1), pages 5-32, February.
    8. repec:bla:joares:v:6:y:1968:i:2:p:159-178 is not listed on IDEAS
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    Cited by:

    1. Gutierrez, German & Philippon, Thomas, 2016. "Investment-less Growth: An Empirical Investigation," CEPR Discussion Papers 11673, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G2 - Financial Economics - - Financial Institutions and Services
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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