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Long Chen, Lu Zhang
NBER Working Paper No. 13282
Issued in July 2007
NBER Program(s): AP
CF
EFG
---- Abstract -----
Building on neoclassical reasoning, we propose a new multi-factor model that consists of the market factor and factor mimicking portfolios based on investment and productivity. The neo- classical three-factor model outperforms traditional factor models in explaining the average returns across testing portfolios formed on momentum, financial distress, investment, profitability, accruals, net stock issues, earnings surprises, and asset growth. Most intriguingly, winners have higher loadings than losers on both the low-minus-high investment factor and the high- minus-low productivity factor, which in turn help explain momentum profits.
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This paper was revised on December 27, 2007 Machine-readable bibliographic record -
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