NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Short- and Long-Horizon Behavioral Factors

Kent Daniel, David Hirshleifer, Lin Sun

NBER Working Paper No. 24163
Issued in December 2017, Revised in May 2018
NBER Program(s):Asset Pricing

Recent theories suggest that both risk and mispricing are associated with commonality in security returns, and that the loadings on characteristic-based factors can be used to predict future returns. We supplement the market factor with two mispricing factors which capture long- and short-horizon mispricing. Our financing factor is based on evidence that managers exploit long-horizon mispricing by issuing or repurchasing equity. Our earnings surprise factor, which is motivated by evidence of limited attention and short-horizon mispricing, captures short-horizon anomalies. Our three-factor risk-and-behavioral model outperforms both traditional and other prominent factor models in explaining a large set of return anomalies.

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Document Object Identifier (DOI): 10.3386/w24163

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