56 Pages Posted: 24 Feb 2021 Last revised: 25 Jun 2021
Date Written: February 11, 2021
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: Suggested Citation