Speculators often advertise arbitrage opportunities in order to persuade other investors and thus accelerate the correction of mispricing. We show that in order to minimize the risk and the cost of arbitrage an investor who identifies several mispriced assets optimally advertises only one of them, and overweights it in his portfolio; a risk-neutral arbitrageur invests only in this asset. The ch...

We review evidence that investors make systematic errors, and that psychological biases a ect market prices. We argue that it is likely that mispricing causes substantial misallocation of resources and ineÆcient risk sharing. However, imperfect rationality of asset markets is not a free license for government to try to correct market mispricing ex post. There is no reason to think that regulato...

W investigate the association between information contained in the American Customer Satisfaction Index (ACSI) metric and future stock market performance. Some past research has provided results suggesting that the financial markets misprice customer satisfaction; i.e., firms advantaged in customer satisfaction are posited to earn positive future-period abnormal stock returns. We reexamine this...

We derive optimal portfolio weights for an investor who has a strong belief on the distribution of the stock price at a future time. That distribution may be in disagreement with standard equilibrium pricing models, and the investor wants to take advantage of the perceived mispricing and attractive risk premium. We compute numerically optimal weights for models in which the investor believes th...

This study explores the conditional version of capital asset pricing model on sentiment to provide a behavioural intuition behind value premium and market mispricing. We find betas (β) risk vary over time across different indices portfolios. More importantly, state β derived from this sentiment-scaled provides explanation set anomalies driven by Different static β–return relation that gives fla...