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Mispricing Factors

Review of Financial Studies 30, April 2017, pp 1270-1315.

93 Pages Posted: 5 Jul 2015 Last revised: 16 Apr 2017

Robert F. Stambaugh

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Yu Yuan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); University of Pennsylvania - Wharton Financial Institutions Center

Multiple version iconThere are 2 versions of this paper

Date Written: September 17, 2016

Abstract

A four-factor model with two “mispricing” factors, in addition to market and size factors, accommodates a large set of anomalies better than notable four- and five-factor alternative models. Moreover, our size factor reveals a small-firm premium nearly twice usual estimates. The mispricing factors aggregate information across 11 prominent anomalies by averaging rankings within two clusters exhibiting the greatest return comovement. Investor sentiment predicts the mispricing factors, especially their short legs, consistent with a mispricing interpretation and the asymmetry in ease of buying versus shorting. A three-factor model with a single mispricing factor also performs well, especially in Bayesian model comparisons.

Keywords: Factor Models, Anomalies, Mispricing, Investor Sentiment

JEL Classification: G12

Suggested Citation

Stambaugh, Robert F. and Yuan, Yu, Mispricing Factors (September 17, 2016). Review of Financial Studies 30, April 2017, pp 1270-1315.. Available at SSRN: https://ssrn.com/abstract=2626701 or http://dx.doi.org/10.2139/ssrn.2626701

Robert F. Stambaugh

University of Pennsylvania - The Wharton School ( email )

The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yu Yuan (Contact Author)

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

University of Pennsylvania - Wharton Financial Institutions Center

3733 Spruce Street
Philadelphia, PA 19104-6374
United States

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