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Neoclassical FactorsLu ZhangOhio State University - Fisher College of Business; National Bureau of Economic Research (NBER) Long ChenCheung Kong Graduate School of Business March 2008 Ross School of Business Paper No. 1088 AFA 2009 San Francisco Meetings Paper Abstract: We propose a new multifactor model that consists of the market factor and factor mimicking portfolios based on investment and productivity motivated from neoclassical reasoning. The neoclassical three-factor model goes a long way in explaining the average returns across testing portfolios formed on momentum, financial distress, investment, profitability, net stock issues, and valuation ratios. In particular, winners have higher loadings than losers on both the low-minus-high investment factor and the high-minus-low productivity factor. We suggest that the neoclassical model is a good start to understanding the cross-sectional variations of average stock returns.
Number of Pages in PDF File: 39 Keywords: The cross-section of returns, anomalies, neoclassical economics, factor regressions JEL Classification: E44, G12, G14 working papers seriesDate posted: June 25, 2007 ; Last revised: September 16, 2009Suggested CitationContact Information
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