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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An examination of the benefits of factor investing in U.K. stock returns
TL;DR: In this paper, the benefits of factor investing in U.K. stock returns in the presence of market frictions were examined. But, the authors found that factor investing provides significant performance benefits when the benchmark investment universe is the market index.
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Factor Investing for the Long Run
Abraham Lioui,Andrea Tarelli +1 more
TL;DR: In this paper, anomaly-based long/short benchmarks are typically built from portfolios double-sorted on size and one additional characteristic, applying simple fixed-weights schemes, showing significant time variations of their abnormal returns (alphas) and market exposures (betas).
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The risk-return relation puzzle
Hui Guo,Yu-Jou Pai +1 more
TL;DR: A positive stock market variance-return relation is the key building block of extant rational-expectations asset pricing models as mentioned in this paper, but empirical evidence is elusive despite forty years of intensive academic research.
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The evaluation and comparison of three benchmark asset pricing models with daily data: supplementary evidence
TL;DR: This work proposes a new benchmark model for China that combines the Fama-French five-factor model with the Hou, Xue and Zhang four-Factor model, and shows clear benefits in predicting poverty and improving quality of life in the country.
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Biased News and Irrational Investors: Evidence from Biased Beliefs about Uncertainty and Information Acquisition
TL;DR: In this paper, the authors show that when sentiment in news articles, as a proxy for biased public information, is more optimistic, investors tend to acquire less earnings-relevant information before the earnings announcement and vice versa.
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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