Arbitrage risk and stock mispricing

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

29 Scopus Citations
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Author(s)

  • John A. Doukas
  • Chansog Kim
  • Christos Pantzalis

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)907-934
Journal / PublicationJournal of Financial and Quantitative Analysis
Volume45
Issue number4
Publication statusPublished - Aug 2010

Abstract

In this paper we examine the relation between equity mispricing and arbitrage risk and find that stocks with high arbitrage risk have higher estimated mispricing than stocks with low arbitrage risk. These results are not limited to high book-to-market or small capitalization stocks, and they are not sensitive to transaction and short-selling costs. In addition, they remain robust to alternative multifactor return generating specification models and mispricing measures. Overall, our empirical results are consistent with the conjecture that mispricing is a manifestation of the inability of arbitrageurs to hedge idiosyncratic risk, a major deterrent to arbitrage activity. Copyright © Michael G. Foster School of Business, University of Washington 2010.

Citation Format(s)

Arbitrage risk and stock mispricing. / Doukas, John A.; Kim, Chansog; Pantzalis, Christos.

In: Journal of Financial and Quantitative Analysis, Vol. 45, No. 4, 08.2010, p. 907-934.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal