Lin Sun

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 which 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 three-factor risk-and-behavioral model outperforms other proposed models in explaining a broad range of return anomalies.

Published:

• forthcoming, Review of Financial Studies
• Kent Daniel & David Hirshleifer & Lin Sun & Lauren Cohen, 2020. "Short- and Long-Horizon Behavioral Factors," The Review of Financial Studies, vol 33(4), pages 1673-1736.