Asset Pricing Anomalies and Macroeconomic Risk : Evidence from Australia

This paper provides a comprehensive examination of whether portfolios formed on capital asset pricing model anomalies capture information related to changes in the investment opportunity set and therefore may be appropriate candidates as state variables within Merton's (1973) ICAPM framework. The size and momentum premia are shown to lose their explanatory power after controlling for innovations in state variables, a result consistent with these variables being risk factors within the ICAPM. In contrast, the value premium is countercyclical and persists after controlling for macroeconomic forecast variables. Two investment-based anomalies, asset growth and tangibility, are examined for the first time, with evidence suggesting that they are explained by mispricing rather than risk