Pricing Without Mispricing

Tobias J. Moskowitz and Robert Stambaugh

No 29016, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We test whether a model could price assets if the market were efficient. Specifically, we test whether a model assigns zero alpha to a strategy that uses only decade-old information, which even an inefficient market would correctly price. Persistence in the strategy’s multifactor betas gives our test power. Multifactor betas can help capture mispricing, but persistence in those betas then leads the multifactor model to distort expected returns well after that information gets priced correctly. The CAPM passes our test, but prominent multifactor models do not.

JEL-codes: G12 G14 G40 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-fmk
Note: AP
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