The ICF would like to congratulate Tobias Moskowitz, the Dean Takahashi ’80 B.A., ’83 M.P.P.M. Professor of Finance, for winning the Jacobs Levy Center Best Paper Prize for 2022 for his paper “Pricing Without Mispricing,” together with his co-authors, Jianan Liu of the University of Hong Kong and Robert Stambaugh of the University of Pennsylvania.
Topics of the winning papers must fall within the scope of the Jacobs Levy Center’s mission, and hence, must have a focus on enhancing the understanding of financial markets through the study and promotion of quantitative techniques and methods as applied to such fields as the analysis of domestic and international stocks and bonds, and the management of investment portfolios.
Abstract: We investigate whether various asset pricing models could hold in an efficient market. Assuming decade-old information should be priced correctly, we test whether a model assigns zero alpha to investment strategies that use only such information. The CAPM passes this test, but prominent multifactor models do not. Multifactor betas may help capture expected returns on mispriced stocks, but persistence in those betas distorts the stocks’ implied expected returns after prices correct. Such effects are strongest in large-cap stocks, whose multifactor betas are the most persistent. Hence, prominent multifactor models distort expected returns, absent mispricing, for the largest, most liquid stocks.
Click here to find out more about the Jacobs Levy Center Research Paper Prizes.