A Model of Anomaly Discovery∗
نویسندگان
چکیده
Our model shows that the discovery of an anomaly reduces its magnitude, regardless of whether the anomaly is due to risk or mispricing. After the discovery, the return from the anomaly becomes more correlated with the returns from other existing anomalies. While riskand mispricing-based anomalies have similar implications for asset prices, they have sharply different implications on investors’ asset holdings, as well as welfare. Our model also produces new testable implications on the effect of anomaly discovery.
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