We provide evidence that arbitrageurs face a complex signal processing problem that delays the elimination of mispricing. Using a powerful database containing the precise timing of information announcements, we find that returns to many anomalies are concentrated in the 30 days after announcements and disappear soon thereafter. We find that prices incorporate information more quickly when portfolio rebalancing is less complex. Moreover, anomaly profits vanish more quickly and arbitrageurs trade more quickly as signal processing costs decline. Our evidence shows the timing of anomaly returns yields important insights about their existence, magnitudes, and relation to computational costs.
Meeting ID: 951 6414 0794