Market Frictions, Price Delay, and the Cross-Section of Expected Returns

  title={Market Frictions, Price Delay, and the Cross-Section of Expected Returns},
  author={K. Hou and T. Moskowitz},
  journal={Capital Markets: Market Microstructure},
  • K. Hou, T. Moskowitz
  • Published 2003
  • Economics
  • Capital Markets: Market Microstructure
  • We parsimoniously characterize the severity of market frictions affecting a stock using the delay with which its price responds to information. The most delayed firms command a large return premium not explained by size, liquidity, or microstructure effects. Moreover, delay captures part of the size effect, idiosyncratic risk is priced only among the most delayed firms, and earnings drift is monotonically increasing in delay. Frictions associated with investor recognition appear most… CONTINUE READING
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