Rationalizing size, value, and momentum effects with an asymmetric CAPM Public Deposited

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Last Modified
  • March 20, 2019
Creator
  • Piccioni, Isacco
    • Affiliation: Kenan-Flagler Business School
Abstract
  • This work shows that an Asymmetric Capital Asset Pricing Model (A-CAPM) that is based on recent decision theory models can rationalize size, value, and momentum anomalies. The A-CAPM is derived by approximating the utility function of the representative agent with asymmetric polynomial models that allow for different attitudes toward risk in the domains of gains and losses. Results show that the A-CAPM rationalizes the cross-section of stock returns, significantly improving with respect to several existing asset pricing models. Furthermore, size, value, and momentum factors do not load when they are tested on the A-CAPM because the model already captures the sources of risk that drive these anomalies: (i) preference for security/potential, (ii) loss aversion, and (iii) goal achievement.
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  • In Copyright
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  • ... in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Kenan-Flagler Business School (Finance).
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  • Lundblad, Christian
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