2017 Hillcrest Behavioral Finance Award
Short and Long Horizon Behavioral Factors
Kent Daniel (Columbia Business School and NBER)
David Hirshleifer (UC Irvine and NBER)
Lin Sun (Florida State University)
Recent theories suggest that both risk and mispricing are associated with commonality in security returns, and that the loadings on characteristic-based factors can be used to predict future returns. We offer a parsimonious model which features: (1) a factor motivated by limited attention that is dominant in explaining short-horizon anomalies, and (2) a factor motivated by overconfidence that is dominant in explaining long-horizon anomalies. Our three-factor risk-and-behavioral composite model outperforms both standard models and recent prominent factor models in explaining a large set of robust return anomalies.
This paper is located at the following SITE.