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Neoclassical Factors

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  • Long Chen
  • Lu Zhang

Abstract

Building on neoclassical reasoning, we propose a new multi-factor model that consists of the market factor and factor mimicking portfolios based on investment and productivity. The neo- classical three-factor model outperforms traditional factor models in explaining the average returns across testing portfolios formed on momentum, financial distress, investment, profitability, accruals, net stock issues, earnings surprises, and asset growth. Most intriguingly, winners have higher loadings than losers on both the low-minus-high investment factor and the high- minus-low productivity factor, which in turn help explain momentum profits.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13282.

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Date of creation: Jul 2007
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Handle: RePEc:nbr:nberwo:13282

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Cited by:
  1. Benjamin Chabot & Eric Ghysels & Ravi Jagannathan, 2009. "Momentum Cycles and Limits to Arbitrage Evidence from Victorian England and Post-Depression US Stock Markets," NBER Working Papers 15591, National Bureau of Economic Research, Inc.
  2. Urs von Arx & Andreas Ziegler, 2008. "The Effect of CSR on Stock Performance: New Evidence for the USA and Europe," CER-ETH Economics working paper series 08/85, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. Jin Ginger Wu & Lu Zhang & X. Frank Zhang, 2007. "Understanding the Accrual Anomaly," NBER Working Papers 13525, National Bureau of Economic Research, Inc.
  4. Hsu, Po-Hsuan, 2009. "Technological innovations and aggregate risk premiums," Journal of Financial Economics, Elsevier, Elsevier, vol. 94(2), pages 264-279, November.

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