Short- and Long-Horizon Behavioral Factors

71 Pages Posted: 12 Dec 2017 Last revised: 18 Apr 2018

See all articles by Kent D. Daniel

Kent D. Daniel

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Lin Sun

Florida State University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2018

Abstract

Recent theories suggest that both risk and mispricing are associated with commonality in security returns, and that the loadings on characteristic-based factors can be used to predict future returns. We supplement the market factor with two mispricing factors which capture long- and short-horizon mispricing. Our financing factor is based on evidence that managers exploit long-horizon mispricing by issuing or repurchasing equity. Our earnings surprise factor, which is motivated by evidence of limited attention and short-horizon mispricing, captures short-horizon anomalies. Our three-factor risk-and-behavioral model outperforms both traditional and other prominent factor models in explaining a large set of return anomalies.

Keywords: Factor Models, Anomalies, Behavioral Factors

JEL Classification: G12, G14

Suggested Citation

Daniel, Kent D. and Hirshleifer, David A. and Sun, Lin, Short- and Long-Horizon Behavioral Factors (March 1, 2018). Columbia Business School Research Paper No. 18-5; 8th Miami Behavioral Finance Conference 2017. Available at SSRN: https://ssrn.com/abstract=3086063 or http://dx.doi.org/10.2139/ssrn.3086063

Kent D. Daniel

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
212-854-4679 (Phone)
212-854-4679 (Fax)

HOME PAGE: http://kentdaniel.net/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lin Sun

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States

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