Short- and Long-Horizon Behavioral Factors
We propose a theoretically-motivated factor model based on investor psychology and assess its ability to explain the cross-section of U.S. equity returns. Our factor model augments the market factor with two factors which capture long- and short-horizon mispricing. The long-horizon factor exploits the information in managers' decisions to issue or repurchase equity in response to persistent mispricing. The short-horizon earnings surprise factor, which is motivated by investor inattention and evidence of short-horizon underreaction, captures short-horizon anomalies. This three-factor risk-and-behavioral model outperforms other proposed models in explaining a broad range of return anomalies.
Non-Technical Summaries
- Author(s): David HirshleiferFinancial analysts and stock market investors alike are subject to behavioral biases. Objective analyst forecasts can potentially help...
Published Versions
Kent Daniel & David Hirshleifer & Lin Sun & Lauren Cohen, 2020. "Short- and Long-Horizon Behavioral Factors," The Review of Financial Studies, vol 33(4), pages 1673-1736. citation courtesy of 
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