The Unintended Impact of Academic Research on Asset Returns: The Capital Asset Pricing Model Alpha

This paper explores a channel whereby asset-pricing anomalies can appear as investors alter portfolios according to findings in academic research. In particular, I find that assets with low realized capital asset pricing model (CAPM) alphas outperform those with high alphas, but this finding only appears after the CAPM's publication in the 1960s. I find evidence consistent with the widespread application of the CAPM generating incentives to tilt portfolios systematically away from low CAPM alpha assets, causing such assets to be undervalued.

Automated summary

This paper explores how asset-pricing anomalies can arise as investors adjust portfolios based on academic research findings. The author finds that assets with low realized CAPM alphas outperform those with high alphas, but this effect is only observed after the publication of CAPM. Evidence suggests that the widespread application of CAPM may lead to systematic tilting of portfolios away from low CAPM alpha assets, causing them to be undervalued.