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 value of growth:changes in profitability and future stock returns
TL;DR: A revised version of the Fama and French (2015) five-factor model that replaces the profitability RMW factor with a profitability-growth factor explains the momentum anomaly at least as well as other prominent factor models as mentioned in this paper.
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Risk-neutral Skewness, Informed Trading, and the Cross-section of Stock Returns
TL;DR: This article used the volatility surface data from options contracts to document a strong, robust, and positive cross-sectional relation between risk-neutral skewness (RNS) and subsequent stock returns.
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Bayesian Selection of Asset Pricing Factors Using Individual Stocks
Soosung Hwang,Alexandre Rubesam +1 more
TL;DR: This paper applied Bayesian variable selection to investigate linear factor asset pricing models for a large set of candidate factors identified in the literature, and extracted model and factor posterior probabilities from thousands of individual stocks via Markov Chain Monte Carlo estimation together with the exact distribution of pricing statistics.
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Accounting-Based Estimates of the Cost of Capital: A Third Way
Stephen H. Penman,Julie Lei Zhu +1 more
TL;DR: In this paper, an approach for estimating the cost of capital from observed accounting information and comparing the resulting estimates to so-called implied cost-of-capital (ICC) calculations and those from asset pricing models is presented.
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Firms' profit instability and the cross-section of stock returns: Evidence from China
TL;DR: Wang et al. as discussed by the authors examined the relation between firms' profit instability and cross-sectional stock returns and found that firms with high profit instability have substantially lower future stock returns than those with low profit instability.
References
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Journal ArticleDOI
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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