Short- and Long-Horizon Behavioral Factors

75 Pages Posted: 3 Jan 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

Multiple version iconThere are 2 versions of this paper

Date Written: December 2017

Abstract

We propose a theoretically-motivated factor model based on investor psychology and assess its ability to explain the cross-section of U.S. equity returns. Our factor model augments the market factor with two factors which capture long- and short-horizon mispricing. The long-horizon factor exploits the information in managers' decisions to issue or repurchase equity in response to persistent mispricing. The short-horizon earnings surprise factor, which is motivated by investor inattention and evidence of short-horizon underreaction, captures short-horizon anomalies. This three-factor risk-and-behavioral model outperforms other proposed models in explaining a broad range of return anomalies.

Suggested Citation

Daniel, Kent D. and Hirshleifer, David A. and Sun, Lin, Short- and Long-Horizon Behavioral Factors (December 2017). NBER Working Paper No. w24163, Available at SSRN: https://ssrn.com/abstract=3095124

Kent D. Daniel (Contact Author)

Columbia Business School - Finance and Economics ( email )

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David A. Hirshleifer

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

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

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

NBER ( email )

1050 Massachusetts Avenue
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United States

Lin Sun

Florida State University

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