Neoclassical Factors

58 Pages Posted: 23 Jul 2007 Last revised: 5 Oct 2007

See all articles by Long Chen

Long Chen

Cheung Kong Graduate School of Business

Lu Zhang, 张橹

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

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Date Written: July 2007

Abstract

Building on neoclassical reasoning, we propose a new multi-factor model that consists of the market factor and factor mimicking portfolios based on investment and productivity. The neo- classical three-factor model outperforms traditional factor models in explaining the average returns across testing portfolios formed on momentum, financial distress, investment, profitability, accruals, net stock issues, earnings surprises, and asset growth. Most intriguingly, winners have higher loadings than losers on both the low-minus-high investment factor and the high- minus-low productivity factor, which in turn help explain momentum profits.

Suggested Citation

Chen, Long and Zhang, Lu, Neoclassical Factors (July 2007). NBER Working Paper No. w13282. Available at SSRN: https://ssrn.com/abstract=1002061

Long Chen

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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