Topic: A Model of Anomaly Discovery

Speaker: Hongjun Yan, Associate Professor of Finance, Yale School of Management

Date: September 17th, 2014 (Wed.)

Time: 1:30-3:00pm

Location: Building 4, Room 101

Language: English

Abstract:

This paper analyzes the consequences of the discovery of anomalies. It shows that consistent with existing evidence, the discovery of an anomaly reduces its magnitude and makes it more correlated with other existing anomalies. One new prediction is that the discovery reduces the correlation between the two portfolios in the anomaly (e.g., the value and growth portfolios in the value anomaly). We empirically test this prediction for value, size, and momentum anomalies, and find clear evidence consistent with this prediction. Our model also sheds light on how to distinguish risk- and mispricing-based anomalies.

About the speaker:

Hongjun Yan is an Associate Professor of Finance at Yale School of Management. He received his Ph.D. in Finance from London Business School in 2005. The focus of professor Yan’s research is to better understand financial markets in the presence of frictions, which include imperfections both in markets and in investors (i.e., bounded rationality). His research has been published in several leading journals, such as Review of Financial Studies, Review of Economic Studies and Management Science.