Download this Paper Open PDF in Browser

Slopes as Factors: Characteristic Pure Plays

41 Pages Posted: 21 Jul 2013  

Kerry Back

Rice University - Jones Graduate School of Business and Department of Economics

Nishad Kapadia

Tulane University - A.B. Freeman School of Business

Barbara Ostdiek

Rice University - Jesse H. Jones Graduate School of Business

Date Written: July 19, 2013

Abstract

Returns to pure play strategies, estimated as Fama-MacBeth slope coefficients on standardized size, value and momentum characteristics, have positive and significant four factor alphas. The mispricing of these characteristics-based strategies by the four factor model is due in part, but not entirely, to (1) the effect of microcap stocks on the pure play returns and (2) the effect of stale book and market capitalization information on the SMB and HML factors. Adjusting for these issues, the value and momentum pure play strategies still have positive and significant four factor alphas. We examine thirteen reported anomalies and find that five have insignificant alphas when the pure play returns are used as factors. Eight are insignificant when an interaction between size and value characteristics is included as a factor.

Keywords: factor pricing models, characteristics, anomalies, performance evaluation

JEL Classification: G11, G12

Suggested Citation

Back, Kerry and Kapadia, Nishad and Ostdiek, Barbara, Slopes as Factors: Characteristic Pure Plays (July 19, 2013). Available at SSRN: https://ssrn.com/abstract=2295993 or http://dx.doi.org/10.2139/ssrn.2295993

Kerry Back

Rice University - Jones Graduate School of Business and Department of Economics ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Nishad Kapadia (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States
504-314-7454 (Phone)

Barbara Ostdiek

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
713-348-5384 (Phone)
713-348-5251 (Fax)

Paper statistics

Downloads
317
Rank
79,357
Abstract Views
1,258