A Financing-Based Misvaluation Factor and the Cross-Section of Expected Returns

A Financing-Based Misvaluation Factor and the Cross-Section of Expected Returns

Several recent behavioral models predict commonality in the misvaluation of firms. In the style investing approach of Barberis and Shleifer (2003), commonality in misvaluation arises when irrational investor enthusiasm for stock characteristics shifts, inducing positive comovement among stocks with similar characteristics and negative comovement in stocks with dissimilar characteristics.

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