Do Limits to Arbitrage Explain Portfolio Gains from Asset Mispricing?
Holder： Alberto Martin-Utrera (University of Notre Dame)
Time：2024-02-29 10:00-11:00
Location：Zoom (ID: 872 7402 6064; password: 948960)
Abstract:
We study the efficiency gains from asset mispricing through the lenses of optimal portfolios. In particular, we decompose the optimal tangency portfolio into a systematic component that explains the time-series variation of stock returns and an unsystematic component that exploits asset mispricing. The unsystematic component offers considerable efficiency gains when combined with the systematic component. However, these gains only survive arbitrage constraints such as estimation risk, transaction costs, and short-sale constraints during high-sentiment periods. We capitalize on this finding to construct sentiment-based portfolios that better span the achievable efficient frontier than existing methods.
About the Speaker:
Alberto Martin-Utrera is a Visiting Assistant Professor of Finance at the University of Notre Dame and an Assistant Professor of Finance at Iowa State University (on leave). His research focuses on empirical asset pricing, financial econometrics, and portfolio optimization. He earned a Ph.D. in Business and Quantitative Methods from the University Carlos III of Madrid and has published his work in the Review of Financial Studies, the Journal of Financial and Quantitative Analysis and Management Science, among others. Martin-Utrera has presented his research at various prestigious conferences, including the American Finance Association Annual Meeting, the European Finance Association Annual Meeting or the Northern Finance Association Annual Meeting.
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