Short- and Long-Horizon Behavioral Factors

By Kent D. Daniel, David A. Hirshleifer, Lin Sun. The Review of financial studies, 2019

287 citations recorded by the source corpus.

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 that 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 3-factor risk-and-behavioral model outperforms other proposed models in explaining a broad range of return anomalies. (JEL G12, G14) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/a92593476559cf7f5576e6877d8094fdd88ecc0f

Citations in the corpus

• Shared analyst coverage: Unifying momentum spillover effects (2018, unknown): “We have examined a comprehensive list of anomalies proposed in the literature and studied by Daniel et al. (2019) .”