New framework explains market anomalies, revolutionizing asset pricing models.
The article explores how different factors affect the pricing of stocks. By allowing the beta (a measure of stock volatility) to change based on company size, value, and past performance, the researchers found that traditional models struggle to explain market anomalies. However, when beta is adjusted, the size and value effects can be better understood, but the impact of past returns remains strong. This suggests that mispricing in the models varies with economic conditions.