Download or read book Feedback Effects and the Limits to Arbitrage written by Alex Edmans and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Feedback Effects and the Limits to Arbitrage written by and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Feedback Effects Asymmetric Trading and the Limits to Arbitrage written by Alex Edmans and published by . This book was released on 2018 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze strategic speculators' incentives to trade on information in a model where firm value is endogenous to trading, due to feedback from the financial market to corporate decisions. Trading reveals private information to managers and improves their real decisions, enhancing fundamental value. This feedback effect has an asymmetric effect on trading behavior: it increases (reduces) the profitability of buying (selling) on good (bad) news. This gives rise to an endogenous limit to arbitrage, whereby investors may refrain from trading on negative information. Thus, bad news is incorporated more slowly into prices than good news, potentially leading to overinvestment.

Download or read book The Limits of Arbitrage and Stock Mispricing written by Naji Mohammad AlShammasi and published by . This book was released on 2015 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to investigate the effect of the "limits of arbitrage" on securities mispricing. Specifically, I investigate the effect of the availability of substitutes and financial constraints on stock mispricing. In addition, this study investigates the difference in the limits of arbitrage, in the sense that it will lead to lower mispricing for these stocks, relative to non-S&P 500 stocks. I also examine if the lower mispricing can be attributed to their lower limits of arbitrage. Modern finance theory and efficient market hypothesis suggest that security prices, at equilibrium, should reflect their fundamental value. If the market price deviates from the intrinsic value, then a risk-free profit opportunity has emerged and arbitrageurs will eliminate mispricing and equilibrium is restored. This arbitrage process is characterized by large number of arbitrageurs which have infinite access to capital. However, a better description of reality is that there are few numbers of arbitrageurs to the extent that they are highly specialized; and they have limited access to capital. Under these condition arbitrage is no more a risk-free activity and can be limited by several factors such as arbitrage risk and transaction costs. Other factors that are discussed in the literature are availability of substitutes and financial constraints. The former arises as a result of the specialization of arbitrageurs in the market in which they operate, while the latter arises as a result of the separation between arbitrageurs and capital. In this dissertation, I develop a measure of the availability of substitutes that is based on the propensity scores obtained from propensity score matching technique. In addition, I use the absolute value of skewness of returns as a proxy of financial constraints. Previous studies used the limits of arbitrage framework to explain pricing puzzles such as the closed-end fund discounts. However, closed-end fund discounts are highly affected by uncertainty of managerial ability and agency problems. This study overcomes this problem by studying the effect of limits of arbitrage on publicly traded securities. The results show that there is a significant relationship between proxies of limits of arbitrage and firm specific mispricing. More importantly, empirical results indicate that stocks that have no close substitutes have higher mispricing. In addition, stocks that have high skewness show higher mispricing. Subsequent studies show that the S&P 500 stocks have different levels of liquidity, analysts' coverage and volatility. These characteristics affect the ability of arbitrageurs to eliminate mispricing. Preliminary univariate tests show that S&P 500 stocks have, on average, lower mispricing and limits of arbitrage relative to non-S&P 500 stocks. In addition, the multivariate test shows that S&P 500 members have, on average, lower mispricing relative to non-S&P 500 stocks.

Download or read book Limits to Arbitrage and the MAX Effect in Advanced Emerging Markets written by Mostafa Seif and published by . This book was released on 2019 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Evidence of a negative relationship between extreme positive returns and future returns has been reported in developed markets; a result that has been attributed to mispricing (Bali, Cakici, & Whitelaw, 2011; Zhong & Gray, 2016). This study examines this MAX anomaly across advanced emerging markets, which are characterised by a higher level of limits to arbitrage compared with development markets. The MAX effect is shown to be larger in magnitude in emerging markets compared with developed markets and the returns generated by this strategy are not explained by conventional risk factors. Abnormal returns on this MAX strategy are largely attributed to the underperformance of stocks on the short side of the strategy. The results reported in this study support the proposition that the MAX effect is a pervasive anomaly that is explained by mispricing.

Download or read book How Constraining Are Limits to Arbitrage written by Alexander Ljungqvist and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Limits to arbitrage play a central role in behavioral finance. They are thought to interfere with arbitrage processes so that security prices can deviate from true values for extended periods of time. We describe a recent financial innovation that allows limits to arbitrage to be sidestepped, and overvaluation thereby to be corrected, even in settings characterized by extreme costs of information discovery and severe short-sale constraints. We report evidence of shallow-pocketed "arbitrageurs" expending considerable resources to identify overvalued companies and profitably correcting overpricing. The innovation that allows the arbitrageurs to sidestep limits to arbitrage involves credibly revealing their information to the market, in an effort to induce long investors to sell so that prices fall. This simple but apparently effective way around the limits suggests that limits to arbitrage may not always be as constraining as sometimes assumed.

Download or read book Limits to arbitrage Investment Frictions and the Investment Effect written by F. Y. Eric C. Lam and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Biased Shorts Short Sellers Disposition Effect and Limits to Arbitrage written by Bastian Von Beschwitz and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Limits of Arbitrage written by Andrei Shleifer and published by . This book was released on 1995 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: In traditional models, arbitrage in a given security is performed by a large number of diversified investors taking small positions against its mispricing. In reality, however, arbitrage is conducted by a relatively small number of highly specialized investors who take large positions using other people's money. Such professional arbitrage has a number of interesting implications for security pricing, including the possibility that arbitrage becomes ineffective in extreme circumstances, when prices diverge far from fundamental values. The model also suggests where anomalies in financial markets are likely to appear, and why arbitrage fails to eliminate them

Download or read book The Asset Growth Anomaly and the Role of Limits to Arbitrage written by FY Eric Lam and published by . This book was released on 2017 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several studies have documented that companies that increase capital investments or grow their total assets subsequently earn substantially lower risk-adjusted returns. While some studies attribute this phenomenon to investors' initial underreactions to overinvestments pursued by managers who are empire building, others attribute it to investors' initial overreactions to shifts in future business prospects implied by asset expansions. This paper examines the role of the limits to arbitrage in the negative effect of capital investment or asset growth on subsequent stock returns. We hypothesize that if the negative effect is due to investors' initial mis-reactions, the effect should be more pronounced when there are more severe limits to arbitrage. Our empirical evidence appears to support our hypothesis.

Download or read book Reflexivity and Economics written by John Davis and published by Routledge. This book was released on 2018-04-19 with total page 240 pages. Available in PDF, EPUB and Kindle. Book excerpt: The form of ‘reflexivity’ – defined by the dictionary as that which is ‘directed back upon itself’ – that is most relevant to economic methodology is that where observation of the economy leads to ideas that change behavior, which in turn changes (is directed back upon) the economy itself. As George Soros explains: "if investors believe that markets are efficient then that belief will change the way they invest, and that in turn will change the nature of the markets they are observing ... That is the principle of reflexivity". Although various versions of reflexivity have long been discussed, in recent years George Soros has been particularly effective in bringing ideas about reflexivity to the attention of the economic and financial communities. In a series of writings he has systematically argued that reflexivity is not only an important aspect of economic life, it is an aspect that is neglected in most mainstream theorizing; and in addition, that the neglect of reflexivity has been responsible for the failure of economists to predict, explain, or offer a solution for events such as the recent financial crisis. Soros’ ideas about reflexivity have important methodological significance, and his chapter in this book summarizes and clarifies his arguments. His contribution is joined by those of thirteen scholars from a wide range of relevant fields, who provide a commentary on the idea of reflexivity in economics. This book was originally published as a special issue of The Journal of Economic Methodology.

Download or read book Handbooks in Operations Research and Management Science Financial Engineering written by John R. Birge and published by Elsevier. This book was released on 2007-11-16 with total page 1026 pages. Available in PDF, EPUB and Kindle. Book excerpt: The remarkable growth of financial markets over the past decades has been accompanied by an equally remarkable explosion in financial engineering, the interdisciplinary field focusing on applications of mathematical and statistical modeling and computational technology to problems in the financial services industry. The goals of financial engineering research are to develop empirically realistic stochastic models describing dynamics of financial risk variables, such as asset prices, foreign exchange rates, and interest rates, and to develop analytical, computational and statistical methods and tools to implement the models and employ them to design and evaluate financial products and processes to manage risk and to meet financial goals. This handbook describes the latest developments in this rapidly evolving field in the areas of modeling and pricing financial derivatives, building models of interest rates and credit risk, pricing and hedging in incomplete markets, risk management, and portfolio optimization. Leading researchers in each of these areas provide their perspective on the state of the art in terms of analysis, computation, and practical relevance. The authors describe essential results to date, fundamental methods and tools, as well as new views of the existing literature, opportunities, and challenges for future research.

Download or read book Understanding Global Crises written by Assaf Razin and published by MIT Press. This book was released on 2014-12-12 with total page 251 pages. Available in PDF, EPUB and Kindle. Book excerpt: A historical and theoretical investigation of the “common storylines” of recent financial crises. Financial crises have some common storylines, among them bursting asset bubbles, bank failures, sharp tightening of credit, and downturn in trade. They are also different from one another. Some start with sudden reversal of international capital flows, others with domestic credit implosions. A challenge to economic research is to integrate common as well as disparate threads into a coherent analytical framework that is at the same time empirically testable. In Understanding Global Crises, Assaf Razin offers a review of an emerging paradigm that is consistent with the key features of recent global financial crises. This paradigm presents in a transparent way basic analytical elements of the theories of financial and monetary crises and how these elements fit together in macroeconomic analysis of global crises. Razin surveys the credit implosion that led to a severe banking crisis in Japan in the 1990s, the Asian financial crisis that began in 1997, the global meltdown of 2008, and the Euro-zone crisis. He reviews the analytics of financial fragilities, credit frictions, currency crises, and balance of payments crises, and addresses international capital flows with information frictions. He then presents key developments in the New Keynesian analytical framework by examining the surge of re-modeling efforts aimed at the development of an analytical framework to underpin monetary and fiscal policy in the post-2008 economic era.

Download or read book Currency Internationalization Global Experiences and Implications for the Renminbi written by W. Peng and published by Springer. This book was released on 2009-11-30 with total page 261 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is the first book to collect academic studies examining issues related to the potential internationalization of the Renminbi. It considers policy implications, documents the rising regional importance of the Renminbi and discusses key issues in the increasing use of the Renminbi in international trade and finance.

Download or read book Inefficient Markets written by Andrei Shleifer and published by OUP Oxford. This book was released on 2000-03-09 with total page 295 pages. Available in PDF, EPUB and Kindle. Book excerpt: The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions. These models can account for such anomalies as the superior performance of value stocks, the closed end fund puzzle, the high returns on stocks included in market indices, the persistence of stock price bubbles, and even the collapse of several well-known hedge funds in 1998. By summarizing and expanding the research in behavioral finance, the book builds a new theoretical and empirical foundation for the economic analysis of real-world markets.

Download or read book Measuring and Managing Liquidity Risk written by Antonio Castagna and published by John Wiley & Sons. This book was released on 2013-09-03 with total page 600 pages. Available in PDF, EPUB and Kindle. Book excerpt: A fully up-to-date, cutting-edge guide to the measurement and management of liquidity risk Written for front and middle office risk management and quantitative practitioners, this book provides the ground-level knowledge, tools, and techniques for effective liquidity risk management. Highly practical, though thoroughly grounded in theory, the book begins with the basics of liquidity risks and, using examples pulled from the recent financial crisis, how they manifest themselves in financial institutions. The book then goes on to look at tools which can be used to measure liquidity risk, discussing risk monitoring and the different models used, notably financial variables models, credit variables models, and behavioural variables models, and then at managing these risks. As well as looking at the tools necessary for effective measurement and management, the book also looks at and discusses current regulation and the implication of new Basel regulations on management procedures and tools.

Download or read book Asset Pricing and Portfolio Performance written by Robert A. Korajczyk and published by . This book was released on 1999 with total page 424 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive reference work presenting an original framework for evaluating observed differences in returns across assets.