Motivated from investment-based asset pricing, we propose a new factor model that consists of the market factor, a size factor, an investment factor, and a return-on-equity factor. The new model [i] outperforms the Carhart (1997) four-factor model in pricing portfolios formed on earnings...

Motivated from investment-based asset pricing, we propose a new factor model consisting of the market factor, a size factor, an investment factor, and a return on equity factor. The new factor model outperforms the Carhart four-factor model in pricing portfolios formed on earnings surprise,...

This paper compares the Hou, Xue, and Zhang (2014) q-factor model and the Fama and French (2014a) five-factor model on both conceptual and empirical grounds. It raises four concerns with the motivation of the five-factor model: The internal rate of return often correlates negatively with the...

If investors have limited attention, then accounting outcomes that saliently highlight positive aspects of a firm's performance will promote high market valuations. When cumulative accounting value added (net operating income) over time outstrips cumulative cash value added (free cash flow), it...

This paper argues that slow diffusion of common information is a leading cause of the lead-lag effect in stock returns. I find that the lead-lag effect is predominantly an intra-industry phenomenon: returns on big firms lead returns on small firms within the same industry. Once this effect is...

I argue that the slow diffusion of industry information is a leading cause of the lead-lag effect in stock returns. I find that the lead-lag effect between big firms and small firms is predominantly an intra-industry phenomenon. Moreover, this effect is driven by sluggish adjustment to negative...

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...

Using monthly returns for over 27,000 stocks from 49 countries over a three-decade period, we show that a multifactor model that includes factor-mimicking portfolios based on momentum and cash flow-to-price captures significant time series variation in global stock returns, and has lower pricing...

We document considerable return comovement associated with accruals after controlling for other common factors. An accrual-based factor-mimicking portfolio has a Sharpe ratio of 0.16, higher than that of the market factor or the SMB and HML factors of Fama and French (1993). According to...

Firms in more concentrated industries earn lower returns, even after controlling for size, book-to-market, momentum, and other return determinants. Explanations based on chance, measurement error, capital structure, and persistent, in-sample, cash flow shocks do not explain this finding. Drawing...