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Digesting Anomalies: An Investment Approach

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 practice

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Citations
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Journal ArticleDOI

The Social Media Risk Premium

TL;DR: In this article, the authors show that institutional and retail investors demand a risk premium from stocks and bonds with higher social media betas, and that social media risk carries an annual risk premium of 7.2% in stocks and 3.3% in bonds.
Proceedings ArticleDOI

Are Profitability and Investment Good Proxies for Risk Factors The Analysis on Fama and French's Five-Factor Model

Zheng Huang
TL;DR: In this article, a five-factor asset pricing model developed by Fama and French, which extends the three-factor model by incorporating two additional indicators that captured profitability and investment in average stock returns, is reviewed.
Journal ArticleDOI

Seasonalities in the German stock market

TL;DR: In this paper, the authors report that long-short investment strategies with a low-risk profile generate robust investment performance, even after adjusting for common risk factors along both the three-factor Fama and French (J Financ Econ 33(1):3-56, 1993) model and the four-factor Carhart (J Finance 52(1:57-82, 1997) model.
Journal ArticleDOI

Do the Rich Gamble in the Stock Market? Low Risk Anomalies and Wealthy Households

TL;DR: In this article, a large-scale household dataset was used to study the negative risk-return relation between stocks held by rich households and non-rich households and found that skewness preference and optimism of rich households as well as their attention/attraction to lottery stocks explain wealthy investors' demand for high-risk stocks, leading to overpricing and low future returns for such stocks.
Journal ArticleDOI

Corporate Discount Rates

TL;DR: Gormsen et al. as mentioned in this paper show that corporate discount rates move with the cost of capital, but the relation is less than one-to-one, leading to time-varying wedges between discount rates and the costs of capital.
References
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Journal ArticleDOI

Common risk factors in the returns on stocks and bonds

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.
Journal ArticleDOI

Risk, Return, and Equilibrium: Empirical Tests

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.
Journal ArticleDOI

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.
Journal ArticleDOI

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.
Journal ArticleDOI

Multifactor Explanations of Asset Pricing Anomalies

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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