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Testing the q-Theory of Anomalies

Author

Listed:
  • Toni M. Whited
  • Lu Zhang

    () (Simon School of Business University of Rochester)

Abstract

The q-theory explanations of asset pricing anomalies are quantitatively important. We perform a new asset pricing test by using GMM to minimize the difference between average stock returns in the data and average investment returns constructed from observable firm characteristics. Under various specifications, the model-implied average returns display similar magnitudes of dispersion across portfolios sorted on investment-to-asset and on size and book-to-market. But the predicted dispersions in average returns among portfolios sorted on earnings surprises are somewhat smaller in magnitude than those observed in the data

Suggested Citation

  • Toni M. Whited & Lu Zhang, 2006. "Testing the q-Theory of Anomalies," 2006 Meeting Papers 380, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:380
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    File URL: http://repec.org/sed2006/up.20259.1139891979.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    q-theory; asset pricing anomalies; structural estimation;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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