We propose a parsimonious, comprehensive proxy for innovations in limited arbitrage: the divergence between the return on an ETF and the return on the underlying net asset value. Consistent with a common component, we confirm limited arbitrage risk-factors, LAF, constructed from return...

Behavioral theories contend that the human decision-making process tends to both incorporate anchor points and improperly weight low probability events. In this study, we find evidence that equity option market investors anchor to prices and incorporate a probability weighting function similar...

We examine the impact of governance quality on the volatility of equity markets. Using 785 ADRs from 44 countries, we provide evidence that good (poor) quality governance in the home country is associated with reduced (enhanced) stock market volatility. The relationship is robust across various...

This paper investigates mispricing (specifically limits to arbitrage) as an alternative to the risk-based explanation of the globalization premium documented by Barrot et al. (2019). We document that the globalization premium is positively correlated with measures of limits to arbitrage. We...