Published Results Impact Future Results

Financial research has uncovered many relationships between investment factors and stock returns. For investors, an important question is whether the publication of this research can impact the future size of factor premiums. Asking this question is crucial on two fronts.

First, if anomalies are the result of behavioral errors, or even investor preferences, and the publication of research into them draws the attention of sophisticated investors, it’s possible that post-publication arbitrage would cause the premiums to disappear. Those seeking to capture these identified premiums could quickly move prices in a manner that reduces the return spread between assets with high and low factor exposure.

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