Asset-pricing anomalies at the firm level

Scott H Cederburg, Michael S. O'Doherty

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

We introduce a hierarchical Bayes approach to model conditional firm-level alphas as a function of firm characteristics. Our empirical framework is motivated by growing concerns in the literature regarding the reliability of inferences from portfolio-based methods. In our initial tests, we confirm the existence of several CAPM anomalies at the firm level. Prominent multifactor models deliver only a modest improvement, however, as they often resolve only those anomalies which are directly linked to their additional factors. Further results suggest that the economic importance of CAPM anomalies is overstated. We find that anomalies are primarily confined to small stocks, few characteristics are associated with CAPM alphas out of sample, and many firm characteristics do not contain unique information about abnormal returns.

Original languageEnglish (US)
Pages (from-to)113-128
Number of pages16
JournalJournal of Econometrics
Volume186
Issue number1
DOIs
StatePublished - May 1 2015

Fingerprint

Asset Pricing
Capital Asset Pricing Model
Anomaly
Costs
Hierarchical Bayes
Conditional Model
Economics
Resolve
Asset pricing
Capital asset pricing model
Firm characteristics

Keywords

  • Asset-pricing anomalies
  • Factor models
  • Hierarchical Bayes

ASJC Scopus subject areas

  • Economics and Econometrics
  • Applied Mathematics
  • History and Philosophy of Science

Cite this

Asset-pricing anomalies at the firm level. / Cederburg, Scott H; O'Doherty, Michael S.

In: Journal of Econometrics, Vol. 186, No. 1, 01.05.2015, p. 113-128.

Research output: Contribution to journalArticle

Cederburg, Scott H ; O'Doherty, Michael S. / Asset-pricing anomalies at the firm level. In: Journal of Econometrics. 2015 ; Vol. 186, No. 1. pp. 113-128.
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