A set of recent papers attempts to explain the size and book-to-market anomalies with conditional CAPM or CCAPM models with economically motivated conditioning variables, or with factor models with economically motivated factors. The tests of these models, as presented, fail to reject the...

We examine carry trade returns formed from the G10 currencies. Performance attributes depend on the base currency. Dynamically spread-weighting and risk-rebalancing positions improves performance. Equity, bond, FX, volatility, and downside equity risks cannot explain profitability....

Despite their strong positive average returns across numerous asset classes, momentum strategies can experience infrequent and persistent strings of negative returns. These momentum crashes are partly forecastable. They occur in "panic" states - following market declines and when market...

The book-to-market effect is often interpreted as evidence of high expected returns on stocks of "distressed" firms with poor past performance. We dispute this interpretation. We find that while a stock's future return is unrelated to the firm's past accounting-based performance, it is strongly...

Firm sizes and book-to-market ratios are both highly correlated with the average returns of common stocks. Eugene F. Fama and Kenneth R. French (1993) argue that the association between these characteristics and returns arise because the characteristics are proxies for nondiversifiable factor...

We provide a model with overconfident risk neutral investors, and therefore no risk premia, in which a price-based portfolio such as HML earns positive expected returns and loads on fundamental macroeconomic variables. Furthermore, loadings on such portfolios are proxies for mispricing and...

Abel's (1998) intertemporal asset pricing model implies that the autocorrelation pattern in expected returns reflects that observed in output growth rates. Consequently, by using the observed autocorrelation properties of macroeconomic data, we are able to provide univariate tests with power to...

Firm size and book-to-market ratios are both highly correlated with the returns of common stocks. Fama and French (1993) have argued that the association between these firm characteristics and their stock returns arises because size and book-to-market ratios are proxies for non-diversifiable...

This paper explains why investors are likely to be overconfident and how this behavioral bias affects investment decisions. Our analysis suggests that investor overconfidence can potentially generate stock return momentum and that this momentum effect is likely to be the strongest in those...