Hou, Kewei; Peng, Lin; Xiong, Wei - Charles A. Dice Center for Research in Financial … - 2006
Motivated by the recent debate on return R2 as an information-efficiency measure, this paper proposes and examines a new hypothesis that R2 is related to investors’ biases in processing information. We provide a model to show that R2 decreases with the degree of the marginal investor’s...