Real Anomalies

Christian C. Opp and Jules van Binsbergen
Published in the Journal of Finance

• Firm managers take cues from how the market values their company’s stock. Therefore, stock market mispricing, particularly when persistent, can lead overvalued (undervalued) firms to overinvest (underinvest).
• Opp & Binsbergen (2019) find that the real costs of informational inefficiencies from stock mispricing are significant.
• They further argue that financial intermediaries, such as active fund managers, can mitigate these mispricings by trading on these alpha opportunities. This in turn helps firms make better investment decisions, which positively affects the real economy.
• The study thus also provides an alternative view on the role of, and management fees charged by active investors.