Publications
Publications
- 2023
Contagious Anomalies
By: Angela Ma and Miles Zheng
Abstract
This paper shows that anomaly strategy contagion contributes a key component of risks induced by arbitrageur trading. We present three main findings: (1) Contagion deteriorates the market liquidity of the contaminated strategy. (2) Increased contagion risk predicts higher strategy covariance with the leverage factor. (3) Due to the 2009 momentum crash, strategies that are ex-ante more connected to momentum experience greater declines in performance. Our results suggest that while diversification generates private risk reduction benefits for arbitrageurs, it also leads to increased contagion risks borne by other market participants.
Keywords
Citation
Ma, Angela, and Miles Zheng. "Contagious Anomalies." Working Paper, 2023.