We analyze a model in which an anomaly is unknown to arbitrageurs until its discovery, and test the model implications on both asset prices and arbitrageurs’ trading activities. Using data on 99 anomalies documented in the existing literature, we find that the discovery of an anomaly reduces the correlation between the returns of its decile-1 and decile-10 portfolios. This discovery effect is stronger if the aggregate wealth of hedge funds is more volatile. Finally, hedge funds increase (reverse) their positions in exploiting anomalies when their aggregate wealth increases (decreases), further suggesting that these discovery effects operate through arbitrage trading.

This paper investigates the relation between media coverage and offering yield spreads using a comprehensive dataset of 5,338 industrial bonds issued from 1990 to 2011. We find that media coverage is negatively associated with firms’ cost of debt. This association is robust to controlling for standard yield determinants, different model specifications, and endogeneity. We identify 4 economic channels through which media coverage influences the cost of debt: Information asymmetry, governance, liquidity, and default risk. Importantly, media coverage has an independent influence beyond the effects of these economic mechanisms and is not a proxy for other firm attributes.