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Mispricing Factors

Robert Stambaugh and Yu Yuan ()

No 21533, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 co-movement in long-short returns. Investor sentiment predicts the mispricing factors, especially their short legs, consistent with a mispricing interpretation and the asymmetry in ease of buying versus shorting. Replacing book-to-market with a single composite mispricing factor produces a better-performing three-factor model.

JEL-codes: G02 G12 G14 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-fmk
Note: AP
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Published as Robert F. Stambaugh & Yu Yuan, 2017. "Mispricing Factors," The Review of Financial Studies, vol 30(4), pages 1270-1315.

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