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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Behavioral-related firm characteristics, risks and determinants of stock returns
Wikrom Prombutr,Chanwit Phengpis +1 more
TL;DR: In this article, the authors investigate a relatively new anomaly of investment growth and revisits well-known anomalies of size and value, and they find that behavioral-related firm characteristics such as investment growth, size, and value are necessary and sufficient as determinants of return premiums and stock returns.
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Risk Reduction and Efficiency Increase in Large Portfolios: Gross-Exposure Constraints and Shrinkage of the Covariance Matrix
TL;DR: In this paper, the effects of constraining gross-exposure and shrinking covariance matrix in constructing large portfolios, both theoretically and empirically, were investigated, and it was shown that a judiciously chosen shrinkage method always outperforms an arbitrarily determined constraint on gross exposure.
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CEO Profile and Earnings Quality
TL;DR: This paper developed a composite score to capture the profile of chief executive officers and examined how well PSCORE could signal the presence of earnings management, finding that PSCore is positively correlated with many empirical proxies, including discretionary accruals, proxies for real earnings management and the deviations of the first digits of figures reported on financial statements from what are expected by Benford's Law.
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Anomalies Enhanced: The Value of Higher Frequency Information
TL;DR: In this paper, the authors provide a simple strategy to incorporate the higher frequency information and find that there is significant economic value-added for eight major anomalies, for which they find that the enhanced anomalies can double the average returns while having similar or lower risks.
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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