Multifactor explanations of asset pricing anomalies

✍ Scribed by Fama E.F., French K.R.

• Book ID: 127434750
• Year: 1996
• Tongue: English
• Weight: 3 MB
• Category: Library

✦ Synopsis

Previous work shows that average returns on common stocks are related to firm characteristics like size, earnings/price, cash flow/price, book-to-market equity, past sales growth, long-term past return, and short-term past return. Because these patterns in average returns apparently are not explained by the CAPM, they are called anomalies. We find that, except for the continuation of short-term returns, the anomalies largely disappear in a three-factor model. Our results are consistent with rational ICAPM or APT asset pricing, but we also consider irrational pricing and data problems as possible explanations.