Turning alphas into betas: Arbitrage and endogenous risk

• 成果类型: Article
• 署名作者: Cho, Thummim
• 署名单位: University of London; London School Economics & Political Science
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2020.02.011
• 发表日期: 2020
• 页码: 550-570
• 关键词: Endogenous risk; Factor betas; Financial intermediaries; arbitrage; Asset pricing anomalies

摘要

Using data on asset pricing anomalies, I test the idea that the act of arbitrage turns alphas into betas: Assets with high initial abnormal returns attract more arbitrage and covary endogenously more with systematic factors that arbitrage capital is exposed to. This channel explains the exposures of 40 anomaly portfolios to aggregate funding liquidity shocks and arbitrageur wealth portfolio shocks. My results highlight that financial intermediaries that act as asset market arbitrageurs not only price assets given risks, but also actively shape these risks through their trades. (C) 2020 Elsevier B.V. All rights reserved.