Costly arbitrage and the myth of idiosyncratic risk

• 成果类型: Article; Proceedings Paper
• 署名作者: Pontiff, Jeffrey
• 署名单位: Boston College
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2006.04.002
• 发表日期: 2006
• 关键词: EARNINGS-ANNOUNCEMENT DRIFT; Market equilibrium; investors; valuation; returns; WEALTH

摘要

Transaction and holding costs make arbitrage costly. Mispricing exists to the extent that arbitrage costs prevent rational traders from fully eliminating inefficiencies. Although the relation between mispricing and transaction costs is well-known, the relation between mispricing and holding costs is misunderstood. One holding cost, idiosyncratic risk, is particularly misunderstood. Various myths are debunked, including the common myth that idiosyncratic risk matters because arbitrageurs only have access to a small number of projects [Shleifer and Vishny, 1997. The limits of arbitrage. The Journal of Finance 52, 35-55.]. The literature demonstrates that idiosyncratic risk is the single largest cost faced by arbitrageurs. (c) 2006 Elsevier B.V. All rights reserved.