Robert Stambaugh and
Yu Yuan ()
Review of Financial Studies, 2017, vol. 30, issue 4, 1270-1315
A four-factor model with two “mispricing” factors, in addition to market and size factors, accommodates a large set of anomalies better than notable four- and five-factor alternative models. Moreover, our size factor reveals a small-firm premium nearly twice usual estimates. The mispricing factors aggregate information across 11 prominent anomalies by averaging rankings within two clusters exhibiting the greatest return co-movement. Investor sentiment predicts the mispricing factors, especially their short legs, consistent with a mispricing interpretation and the asymmetry in ease of buying versus shorting. A three-factor model with a single mispricing factor also performs well, especially in Bayesian model comparisons.
JEL-codes: G12 (search for similar items in EconPapers)
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Working Paper: Mispricing Factors (2015)
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