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A Quantum Leap in Asset Pricing: Explaining Anomalous Returns

Author

Listed:
  • James W. Kolari

    (Adam C. Sinn ’00 Department of Finance, Mays Business School, Texas A&M University, College Station, TX 77843, USA)

  • Jianhua Huang

    (Technology and Innovation Center for Digital Economy (TIDE), School of Data Science, The Chinese University of Hong Kong, Shenzhen 518172, China)

  • Wei Liu

    (Adam C. Sinn ’00 Department of Finance, Mays Business School, Texas A&M University, College Station, TX 77843, USA)

  • Huiling Liao

    (Applied Mathematics, Illinois Institute of Technology, Chicago, IL 60616, USA)

Abstract

This paper investigates the ability of asset pricing models to explain the cross-section of average stock returns of anomaly portfolios. A large sample of 286 anomaly portfolios are employed. We perform out-of-sample cross-sectional regression tests of both prominent asset pricing models and a relatively new model dubbed the ZCAPM. Empirical tests strongly support the lesser known ZCAPM but not other multifactor models. Further analyses of out-of-sample mispricing errors of the models reveal that the ZCAPM provides much more accurate pricing of anomaly portfolios than other models. We conclude that anomalies are anomalous to popular multifactor models but not the ZCAPM. By implication, the efficient market hypothesis is supported.

Suggested Citation

  • James W. Kolari & Jianhua Huang & Wei Liu & Huiling Liao, 2025. "A Quantum Leap in Asset Pricing: Explaining Anomalous Returns," JRFM, MDPI, vol. 18(7), pages 1-28, July.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:7:p:362-:d:1692198
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