TY - JOUR
T1 - Asset-pricing anomalies at the firm level
AU - Cederburg, Scott
AU - O'Doherty, Michael S.
N1 - Publisher Copyright:
© 2014 Elsevier B.V.
PY - 2015/5/1
Y1 - 2015/5/1
N2 - 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.
AB - 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.
KW - Asset-pricing anomalies
KW - Factor models
KW - Hierarchical Bayes
UR - http://www.scopus.com/inward/record.url?scp=84926410445&partnerID=8YFLogxK
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U2 - 10.1016/j.jeconom.2014.06.004
DO - 10.1016/j.jeconom.2014.06.004
M3 - Article
AN - SCOPUS:84926410445
VL - 186
SP - 113
EP - 128
JO - Journal of Econometrics
JF - Journal of Econometrics
SN - 0304-4076
IS - 1
ER -