Abstract

http://ssrn.com/abstract=408161
 
 

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Market Frictions, Price Delay, and the Cross-Section of Expected Returns


Kewei Hou


Ohio State University (OSU) - Department of Finance

Tobias J. Moskowitz


University of Chicago - Booth School of Business; AQR Capital; National Bureau of Economic Research (NBER)

April 2003

CRSP Working Paper No. 547

Abstract:     
We parsimoniously characterize the severity of market frictions affecting a stock using the delay with which its share price responds to information. The most severely delayed firms command a large return premium that captures the size effect and half the value premium. Moreover, idiosyncratic risk is priced only among the most delayed firms. These results are not explained by other sources of return premia, microstructure, or pure liquidity effects, but appear most consistent with investor recognition and firm neglect. The very small segment of neglected firms (less than 0.02% of the market) captures a sizeable amount of cross-sectional variation in average returns.

Number of Pages in PDF File: 42


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Date posted: May 27, 2003  

Suggested Citation

Hou, Kewei and Moskowitz, Tobias J., Market Frictions, Price Delay, and the Cross-Section of Expected Returns (April 2003). CRSP Working Paper No. 547. Available at SSRN: http://ssrn.com/abstract=408161 or http://dx.doi.org/10.2139/ssrn.408161

Contact Information

Kewei Hou (Contact Author)
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Tobias J. Moskowitz
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)

Chicago Booth School of Business Logo

AQR Capital ( email )
Greenwich, CT
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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