Review of Financial Studies Vol. 33 No. 4 2020
Short- and Long-Horizon Behavioral Factors
Abstract
We propose a theoretically motivated factor model based on investor psychology and assess its ability to explain the cross-section of U.S. equity returns. Our factor model augments the market factor with two factors that capture long- and short-horizon mispricing. The long-horizon factor exploits the information in managers’ decisions to issue or repurchase equity in response to persistent mispricing. The short-horizon earnings surprise factor, which is motivated by investor inattention and evidence of short-horizon underreaction, captures short-horizon anomalies. This 3-factor risk-and-behavioral model outperforms other proposed models in explaining a broad range of return anomalies.
- DOI
- 10.1093/rfs/hhz069
- Volume
- 33
- Issue
- 4
- Pages
- 1673-1736
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref