Fundamental Anomalies

56 Pages Posted: 24 Feb 2021 Last revised: 25 Jun 2021

See all articles by Erica X. N. Li

Erica X. N. Li

Cheung Kong Graduate School of Business

Guoliang Ma

Iowa State University

Shujing Wang

Tongji University

Cindy Yu

Iowa State University

Date Written: February 11, 2021

Abstract

This paper examines to what extent stock market anomalies are driven by firm fundamentals in an investment-based asset pricing framework. Using Bayesian Markov Chain Monte Carlo (MCMC), we estimate a two-capital q-model to match firm-level stock returns, instead of matching portfolio-level return moments. 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 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, Investment, Profitability, Momentum, BMCMC Estimation

JEL Classification: D21, D92, E22, E44, G12, G14, G31, G32, G34

Suggested Citation

Li, Erica X. N. and Ma, Guoliang and Wang, Shujing and Yu, Cindy, Fundamental Anomalies (February 11, 2021). Available at SSRN: https://ssrn.com/abstract=3783526 or http://dx.doi.org/10.2139/ssrn.3783526

Erica X. N. Li (Contact Author)

Cheung Kong Graduate School of Business ( email )

1 East ChangAn Avenue, Oriental Plaza, E2, 20/F
One East Chang An Avenue
Beijing, 100738
China

Guoliang Ma

Iowa State University ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

Shujing Wang

Tongji University ( email )

Shanghai
China

Cindy Yu

Iowa State University ( email )

613 Wallace Road
Ames, IA 50011
United States

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