123 Pages Posted: 24 Feb 2021 Last revised: 11 Jul 2022
Date Written: February 11, 2021
This paper proposes a portfolio-independent method to estimate q-theory models and examines whether an extensive set of stock market anomalies can be generated by a two-capital q-model. Model parameters are obtained using Bayesian Markov Chain Monte Carlo (MCMC) to match firm-level stock returns. Our methodology addresses Campbell (2017)’s critique on prior studies that model parameters are chosen to fit a specific set of anomalies and different values are needed to fit each anomaly. The estimated two-capital model generates large and significant size, momentum, profitability, investment, and intangibles premiums. However, it falls short in explaining the value and accruals anomalies.
Keywords: q-theory, Bayesian MCMC estimation, Anomalies, Investment, Profitability
JEL Classification: D21, D92, E22, E44, G12, G14, G31, G32, G34
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