Testing the q-Theory of Anomalies

Toni Whited and Lu Zhang ()

No 380, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: The q-theory explanations of asset pricing anomalies are quantitatively important. We perform a new asset pricing test by using GMM to minimize the difference between average stock returns in the data and average investment returns constructed from observable firm characteristics. Under various specifications, the model-implied average returns display similar magnitudes of dispersion across portfolios sorted on investment-to-asset and on size and book-to-market. But the predicted dispersions in average returns among portfolios sorted on earnings surprises are somewhat smaller in magnitude than those observed in the data

Keywords: q-theory; asset pricing anomalies; structural estimation (search for similar items in EconPapers)
JEL-codes: G12 G14 G31 (search for similar items in EconPapers)
Date: 2006
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