Abstract

http://ssrn.com/abstract=319240
 
 

References (24)



 
 

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Risk or Mispricing? From the Mouths of Professionals


Robert J. Bloomfield


Cornell University - Samuel Curtis Johnson Graduate School of Management

Roni Michaely


Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)

July 8, 2002



Abstract:     
Most tests of asset pricing models rely on realized returns as a proxy for expected returns, and cannot determine whether security characteristics are associated with returns because they affect risk or because they reflect mispricing. This paper avoids these problems by conducting two experiments in which we directly elicit how Beta, Market-to-Book ratios and firm size affect the returns expected by Wall Street professionals, and how those factors affect perceived risk and mispricing. Consistent with traditional asset pricing models, professionals expect firms with higher Betas to be riskier investments and generate higher returns. Consistent with behavioral models, professionals expect firms with higher Market-to-Book ratios to be over-priced (and riskier). Professionals expect large firms to be less risky, but do not view firm size to be a sign of mispricing.

Number of Pages in PDF File: 37

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Date posted: August 23, 2002  

Suggested Citation

Bloomfield, Robert J. and Michaely, Roni, Risk or Mispricing? From the Mouths of Professionals (July 8, 2002). Available at SSRN: http://ssrn.com/abstract=319240 or http://dx.doi.org/10.2139/ssrn.319240

Contact Information

Robert J. Bloomfield
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
450 Sage Hall
Ithaca, NY 14853
United States
607-255-9407 (Phone)
607-254-4590 (Fax)
Roni Michaely (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
431 Sage Hall
Ithaca, NY 14853
United States
607-255-7209 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Michaely/
Interdisciplinary Center (IDC)
P.O. Box 167
Herzliya, 46150
Israel
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