Assuming that risk premiums are determined by failure risk, we present a stylized model of interactions among risk-proxy variables, external financing, and stock returns in which a common mispricing factor, involving operating profit and external financing, drives the following five asset...

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...

We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions...

Investors often focus their attention on recent information only, underestimating the rele-vance of information from the distant past. In consequence, the ordering of historical re-turns robustly predicts future stock performance in the cross-section. Using data from 49 countries, we...

I investigate whether the relation between investor sentiment and profitable trading strategies is due to short sale constraints. I find that the average security in these strategies is not hard-to-short. Furthermore, the short leg does not appear to be harder to short or more overvalued than...

Using stocks traded on the NYSE, AMEX and NASDAQ for the period of 1964 to 2009, this study demonstrates that, while momentum prevails among small stocks, momentum and reversals coexist among large stocks for a holding period of up to six months. The momentum/reversal divide is along the...

We find increasingly large variations in returns from momentum strategies in recent years. Momentum strategies did not earn significant excess returns during the period of 1993-2004 which was due to their poor performance over the period from 2001-2004. Using sub-samples of smaller...

This study examines the relative importance of percentage change in price-to-earnings ratio (PE), percentage change in dividend yield (DY) and change in aggregate Tobin's q ratio (∆TBQ) in forecasting returns on the S&P 500 (SP). The results from the variance decomposition analysis of...

Investor sentiment is an important condition for style investing in affecting asset price predictability. We find that style returns have predictive power for future stock returns in high sentiment periods, but not low sentiment periods. The correlation between style returns and stock returns...