Book to market, stattman, 1980, the chicago mba, cross sectional. Further analysis indicates that the turnover premium is greater for stocks with higher idiosyncratic volatility. Arbitrage risk and the book to market anomaly abstract this paper shows that the book to market bm effect is greater for stocks with higher idiosyncratic return volatility, higher transaction costs and lower investor sophistication, consistent with the market mispricing explanation for the anomaly. This paper shows that the booktomarket bm effect is greater for stocks with higher idiosyncratic return volatility, higher transaction costs, and. This paper shows that the book to market bm effect is greater for stocks with higher idiosyncratic return volatility, higher transaction costs, and lower investor sophistication, consistent with the marketmispricing explanation for the anomaly.
White center for financial research working papers 2792. The bm effect for high volatility stocks exceeds that for the low volatility stocks in 20 of the 22 sample years. Arbitrage risk and the booktomarket anomaly abstract this paper shows that the booktomarket bm effect is greater for stocks with higher idiosyncratic return volatility, higher transaction costs and lower investor sophistication, consistent with the market mispricing explanation for the anomaly. This paper shows that the booktomarket bm effect is greater for stocks with higher idiosyncratic return volatility, higher transaction costs, and lower investor sophistication, consistent with the marketmispricing explanation for the anomaly. Arbitrage risk and the booktomarket anomaly by ashiq ali, lee. A market anomaly in a financial market is predictability that seems to be inconsistent with.
Costly arbitrage and the myth of idiosyncratic risk, journal of accounting and economics, elsevier, vol. To recap the anomaly, whether risk is defined as volatility or beta and whether we consider all stocks or only large caps, low risk consistently outperformed high risk over this period. Arbitrage arbitrage is defined as the simultaneous purchase and sale of the same, or essentially similar, security in two different markets for advantageously different prices sharpe and alexander 1990. Arbitrage risk and the booktomarket anomaly university. Arbitrage risk and the book to market anomaly article in journal of financial economics 692. Even the simplest realistic arbitrages are more complex than the textbook definition suggests.
Monthly and daily valueatrisk percentiles of pairs trading strategies between july 1963 to december 2002 474 months. Arbitrage risk and the booktomarket anomaly sciencedirect. These results are not limited to high booktomarket or small capital. Reits growth options and asset pricing dynamics across time, koc universitytusiad economic research forum working papers 3, koc universitytusiad economic research forum.
Pairs are formed over a 12 month period according to a minimum distance criterion, and then traded over the subsequent 6. Arbitrage pricing theory and multifactor models of risk. The limits of arbitrage arbitrage futures contract. This paper shows that the booktomarket bm effect is greater for stocks with higher idiosyncratic return volatility, higher transaction costs and. Arbitrage risk and the turnover anomaly request pdf. View references in econpapers view complete reference list from citec. Arbitrage risk and the booktomarket anomaly article in journal of financial economics 692. Displayed and effective spreads by market revision of 492, rodney l. Arbitrage risk and the booktomarket anomaly university of arizona. Citations of arbitrage risk and the booktomarket anomaly. Arbitrage risk and the booktomarket anomaly econpapers. This paper shows that the booktomarket bm effect is greater for stocks with higher idiosyncratic return volatility, higher transaction costs, and lower investor. Arbitrage risk and the booktomarket anomaly by ashiq ali. Evidence from the mutual fund industry, journal of law and economics, university of chicago press, vol.