Putting the price in asset pricing

Cho, Thummim and Polk, Christopher ORCID: 0009-0008-0133-6709 (2024) Putting the price in asset pricing. Journal of Finance, 79 (6). 3943 - 3984. ISSN 0022-1082

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Abstract

We propose a novel way to estimate a portfolio's abnormal price, the percentage gap between price and the present value of dividends computed with a chosen asset pricing model. Our method, based on a novel identity, resembles the time-series estimator of abnormal returns, avoids the issues in alternative approaches, and clarifies the role of risk and mispricing in long-horizon returns. We apply our techniques to study the cross-section of price levels relative to the capital asset pricing model (CAPM) and find that a single characteristic, adjusted value, provides a parsimonious model of CAPM-implied abnormal price.

Item Type:	Article
Additional Information:	© 2024 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Date Deposited:	20 Nov 2023 16:15
Last Modified:	12 Dec 2024 03:57
URI:	http://eprints.lse.ac.uk/id/eprint/120805

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