Cookies?
Library Header Image
LSE Research Online LSE Library Services

Turning alphas into betas: arbitrage and endogenous risk

Cho, Thummim (2020) Turning alphas into betas: arbitrage and endogenous risk. Journal of Financial Economics, 137 (2). 550 - 570. ISSN 0304-405X

[img] Text (Turning alphas into betas) - Accepted Version
Repository staff only until 5 September 2021.

Download (1MB) | Request a copy

Identification Number: 10.1016/j.jfineco.2020.02.011

Abstract

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.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-f...
Additional Information: © 2020 Elsevier B.V.
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
Date Deposited: 14 Oct 2019 11:45
Last Modified: 14 Jul 2020 09:06
URI: http://eprints.lse.ac.uk/id/eprint/102085

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics