Theories suggest that both risk and mispricing are associated with commonality in returns, and information associated with this commonality can be used to predict future returns. However, empirically implemented factor pricing models rarely incorporate psychological factors. I propose to augment standard factor models with behavioral factors to capture commonality in mispricing caused by psycho...

We document that hedge funds nurture mispricing in the Chinese financial market. exploit relationship between fund holdings and degree of case stocks are mainly for arbitrage purpose but not hedging, with without short-selling restrictions. Hedge intentionally hold overvalued stocks. Their trades, which generate an abnormal return to 1.78% per month, also impede dissipation stock mispricing. Fu...

Abstract Factor momentum produces robust average returns that exhibit a similar economic magnitude as stock price momentum. To the extent post-earnings announcement drift (PEAD) factor captures mispricing, winner factors earn profits from being long on underpriced stocks and short overpriced stocks. Conversely, loser-factors’ negative exposure to PEAD suggests loser capture mispricing by Option...

This article provides an empirical investigation into the validity of the production-based capital asset-pricing model (P-CAPM) in the Japanese asset markets during the period 1980-1997. Several methodologies are used to test the P-CAPM, which include the GMM test of the Euler equations, the volatility bound test, the mispricing test, and the test of the ability of stock and investment returns ...