Finance Seminar（2014-25）

Topic: A Model of Anomaly Discovery

Speaker: Hongjun Yan, Yale School of Management

Time: Monday, 15 September, 10:00-11:30

Location: Room 217,Guanghua Building 2

Abstract: This paper analyzes the consequences of the discovery of anomalies. It shows that consistent with existing evidence, the discovery of an anomaly reduces its magnitude and makes it more correlated with other existing anomalies. One new prediction is that the discovery reduces the correlation between the anomaly portfolios (e.g., the value and growth portfolios in the value anomaly). We empirically test this prediction for value, size, and momentum anomalies, and find clear evidence consistent with this prediction. Our model also sheds light on how to distinguish risk- and mispricing-based anomalies.