Assessing Asset Pricing Anomalies

Michael J. Brennan; Yihong Xia

doi:10.1093/rfs/14.4.905

← Search

Assessing Asset Pricing Anomalies

Michael J. Brennan¹; Yihong Xia^2,3

¹ University of California, Los Angeles · ² California University of Pennsylvania · ³ University of Pennsylvania

Review of Financial Studies 2001

The optimal portfolio strategy is developed for an investor who has detected an asset pricing anomaly but is not certain that the anomaly is genuine rather than merely apparent. The analysis takes account of the fact that the parameters of both the underlying asset pricing model and the anomalous returns are estimated rather than known. The value that an investor would place on the ability to invest to exploit the apparent anomaly is also derived and illustrative calculations are presented for the Fama and French SMB and HML portfolios, whose returns are anomalous relative to the CAPM.

DOI: 10.1093/rfs/14.4.905
Volume: 14 (4)
Pages: 905-942
Language: en
Export: BibTeX
Sources: openalex crossref