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RFS Advance Access originally published online on February 20, 2006
Review of Financial Studies 2006 19(3):1001-1040; doi:10.1093/rfs/hhj025
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© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Asset Pricing Models and Financial Market Anomalies

Doron Avramov
R. H. Smith School of Business, University of Maryland

Tarun Chordia
Goizueta Business School, Emory University

Address correspondence to Doron Avramov, University of Maryland, College Park, MD 20742, or email: davramov{at}rhsmith.umd.edu.

This article develops a framework that applies to single securities to test whether asset pricing models can explain the size, value, and momentum anomalies. Stock level beta is allowed to vary with firm-level size and book-to-market as well as with macroeconomic variables. With constant beta, none of the models examined capture any of the market anomalies. When beta is allowed to vary, the size and value effects are often explained, but the explanatory power of past return remains robust. The past return effect is captured by model mispricing that varies with macroeconomic variables.


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