Open AccessPosted Content
Digesting Anomalies: An Investment Approach
Kewei Hou,Chen Xue,Lu Zhang +2 more
TLDR
In this paper, the authors proposed a new factor model that consists of the market factor, a size factor, an investment factor, and a return-on-equity factor.Abstract:
Motivated from investment-based asset pricing, we propose a new factor model that consists of the market factor, a size factor, an investment factor, and a return-on-equity factor The new model [i] outperforms the Carhart (1997) four-factor model in pricing portfolios formed on earnings surprise, idiosyncratic volatility, financial distress, equity issues, as well as on investment and return-on-equity; [ii] performs similarly as the Carhart model in pricing portfolios on momentum as well as on size and book-to-market; but [iii] underperforms in pricing the total accrual deciles Our model's performance, combined with its clear economic intuition, suggests that it can serve as a new workhorse model for academic research and investment management practiceread more
Citations
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The Risk-Return Trade-Off Among Equity Factors
Pedro Barroso,Paulo F. Maio +1 more
TL;DR: In this paper, the authors examined the risk-return trade-off among several long-short equity factors, including operating profitability (RMW), investment (CMA), and market (RM) and momentum factors.
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Leverage and Risk in Hedge Funds
TL;DR: This article found that hedge fund leverage and portfolio risk are weakly negatively correlated and that leverage is in part used to scale the payoffs of low-beta, high-alpha securities.
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R&D information quality and stock returns
TL;DR: The authors construct a measure of R&D information quality (RDIQ) by linking a firm's historical innovation input (R&D expenditures) and innovation outcome (sales) and find significant evidence that expected excess returns decrease with RDIQ.
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Credit risk and equity returns in China
Tangrong Li,Hui Lin +1 more
TL;DR: In this paper, a credit risk factor UMT (untrustworthy minus trustworthy) is proposed to improve the pricing effectiveness of the Fama-French five-factor model and the modified model with the investment factor replaced by UMT is more applicable to the Chinese environment.
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Firm age and realized idiosyncratic return volatility in China: The role of short-sales constraints
TL;DR: Wang et al. as mentioned in this paper investigated how realized idiosyncratic return volatility changes with firm age in Chinese stock market, and found that realized return volatility is negatively associated with firm ages, and that heterogeneity of investor beliefs is the most likely mechanism driving the negative relation.
References
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Common risk factors in the returns on stocks and bonds
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this article, the authors identify five common risk factors in the returns on stocks and bonds, including three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity.
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Risk, Return, and Equilibrium: Empirical Tests
Eugene F. Fama,James D. MacBeth +1 more
TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.
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Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
TL;DR: In this article, the authors show that strategies that buy stocks that have performed well in the past and sell stocks that had performed poorly in past years generate significant positive returns over 3- to 12-month holding periods.
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Does the Stock Market Overreact
TL;DR: In this article, a study of market efficiency investigates whether people tend to "overreact" to unexpected and dramatic news events and whether such behavior affects stock prices, based on CRSP monthly return data, is consistent with the overreaction hypothesis.
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Multifactor Explanations of Asset Pricing Anomalies
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this article, the authors show that many of the CAPM average-return anomalies are related, and they are captured by the three-factor model in Fama and French (FF 1993).
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CAPM tests and alternative factor portfolio composition: getting the alphas right
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