Failure of Asset Pricing Models : Transaction Cost , Irrationality , or Missing Factors

@inproceedings{Chae2007FailureOA,
  title={Failure of Asset Pricing Models : Transaction Cost , Irrationality , or Missing Factors},
  author={Joon Seok Chae},
  year={2007}
}
The reason for the failure of asset pricing models can be divided into three categories: Transaction costs, investor irrationality, or missing risk factors. This study investigates which of the three categories best explains the poor performance of asset pricing models. We regress the differences between the expected return and the realized return on variables related to the failure of asset pricing models. First, we find that both transaction costs and investor irrationality are significantly… CONTINUE READING

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