Projects per year
Abstract
We offer a new perspective on the low-beta anomaly by acknowledging the omitted-variable problem in the correlation component of beta: Correlation is “plagued” by firm size (the omitted variable) to exhibit a negative price. Once isolating the size impact, a hidden positive price emerges for the size-orthogonalized component of correlation. Further analyses suggest that (a) the positive price of the size-orthogonalized component is not due to mispricing, supporting the return comovement-based pricing channel; (b) the negative price of the size-explained component is related to illiquidity and coskewness.; (c) the omitted-variable problem also applies to the pricing of beta.
Original language | English |
---|---|
Pages (from-to) | 519-552 |
Number of pages | 34 |
Journal | Financial Management |
Volume | 50 |
Issue number | 2 |
Early online date | 22 Sept 2020 |
DOIs | |
Publication status | Published - Jun 2021 |
Keywords
- beta anomaly
- correlation
- omitted variable bias
Fingerprint
Dive into the research topics of 'Correlation and the omitted variable: A tale of two prices'. Together they form a unique fingerprint.Projects
- 1 Finished