Dynamic asset (mis)pricing: Build-up versus resolution anomalies

Jules H. van Binsbergen, Martijn Boons, Christian Opp and Andrea Tamoni

Journal of Financial Economics, 2023, vol. 147, issue 2, 406-431

Abstract: We classify asset pricing anomalies into those exacerbating mispricing (build-up anomalies) and those resolving it (resolution anomalies). We estimate the dynamics of price wedges for well-known anomaly portfolios and map them to firm-level mispricings. We find that several prominent anomalies like momentum and profitability further dislocate prices. Multi-factor models designed to eliminate one-month alphas still produce large price wedges. Our estimates yield a novel decomposition of Tobin’s q, revealing that q’s mispricing component has substantial explanatory power for firm investment. Overall, our results suggest that financial intermediaries chasing build-up anomalies negatively affect price efficiency and associated real capital allocation.

Keywords: Mispricing; Price wedges; Tobin’s q; Real misallocation (search for similar items in EconPapers)
JEL-codes: E22 G02 G11 G12 G14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:147:y:2023:i:2:p:406-431

DOI: 10.1016/j.jfineco.2022.11.005

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