Pricing Without Mispricing / Jianan Liu, Tobias J. Moskowitz, Robert F. Stambaugh.

Format:

Book

Author/Creator:

Liu, Jianan.

Contributor:

National Bureau of Economic Research.

Moskowitz, Tobias J.

Stambaugh, Robert F.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29016.

NBER working paper series no. w29016

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

We investigate whether various asset pricing models could hold in an efficient market. Assuming decade-old information should be priced correctly, we test whether a model assigns zero alpha to investment strategies that use only such information. The CAPM passes this test, but prominent multifactor models do not. Multifactor betas may help capture expected returns on mispriced stocks, but persistence in those betas distorts the stocks' implied expected returns after prices correct. Such effects are strongest in large-cap stocks, whose multifactor betas are the most persistent. Hence, prominent multifactor models distort expected returns, absent mispricing, for the largest, most liquid stocks.

Notes:

Print version record

July 2021.