Abstract

http://ssrn.com/abstract=2451582
 
 

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Asset-Pricing Anomalies at the Firm Level


Scott Cederburg


University of Arizona - Department of Finance

Michael S. O'Doherty


University of Missouri at Columbia - Department of Finance; University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

June 16, 2014

Journal of Econometrics, Forthcoming

Abstract:     
We introduce a hierarchical Bayes approach to model conditional firm-level alphas as a function of firm characteristics. Our empirical framework is motivated by growing concerns in the literature regarding the reliability of inferences from portfolio-based methods. In our initial tests, we confirm the existence of several CAPM anomalies at the firm level. Prominent multifactor models deliver only a modest improvement, however, as they often resolve only those anomalies which are directly linked to their additional factors. Further results suggest that the economic importance of CAPM anomalies is overstated. We find that anomalies are primarily confined to small stocks, few characteristics are associated with CAPM alphas out of sample, and many firm characteristics do not contain unique information about abnormal returns.

Number of Pages in PDF File: 49

Keywords: Hierarchical Bayes, Factor models, Asset-pricing anomalies

JEL Classification: C11, G10, G12, G14

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Date posted: June 18, 2014  

Suggested Citation

Cederburg, Scott and O'Doherty, Michael S., Asset-Pricing Anomalies at the Firm Level (June 16, 2014). Journal of Econometrics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2451582

Contact Information

Scott Cederburg
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
Michael S. O'Doherty (Contact Author)
University of Missouri at Columbia - Department of Finance ( email )
Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )
331 Cornell Hall
Columbia, MO 65211
United States
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