We propose a new model of expected stock returns that incorporates quantity information from market trading activities into the factor pricing framework. We posit that the expected return of a stock is determined by not only its factor risk exposures (beta) but also the factor's quantity fluctuations (q) induced by trading flows, and hence term the model beta times quantity (BTQ). The rationale is that sophisticated investors should demand a higher factor premium when they have absorbed noise trading flows of stocks with high loadings to that factor. The BTQ model provides a compelling risk-based explanation for stock returns, which is otherwise obscured without considering the quantity information. The cross-sectional risk-return association, which is nearly flat unconditionally, strongly depends on the quantity variable. The structured BTQ model reliably predicts monthly stock returns out of sample, and addresses the factor zoo problem by selecting a small number of factors.
This study examines the relationship between stocks with lottery-like characteristics and trading activity and returns in the Thai stock market (SET and MAI, 2002–2025). Thailand is well-suited for this study, given its strong lottery culture and retail investors' 35–50% share of trading volume. Using the Lottery-Like...
This study examines the effect of information uncertainty (IU) on stock price crash risk. Although ambiguity aversion theory predicts that investors overweight bad news under uncertainty, thereby producing asymmetric market responses, existing empirical evidence has largely focused on asset returns, analyst behavio...
Lian-Cun Guo, Di Chen, Hai-Gang Zhou· Review of Behavioral Finance· 0 citations
Market timing models aim to anticipate short-term market movements according to a given source of information. Such information could be extracted from an analysis of history or a forecast of the future. In fact, the financial markets are driven mainly by the expectations of market investors and by exogenous sources....
S. Vitali, Miloš Kopa, R. Domínguez et al.· Annals of Operations Researc...· 0 citations
We develop a method for estimating the private value of knowing the future realization of some financial statistics, and then we apply the measure to the familiar ratios from the DuPont decomposition of return on equity. The estimation is grounded in the standard rational expectations model, adapted to accommodate re...
Russell J. Lundholm, Xin Zheng· Contemporary Accounting Rese...· 0 citations
Structured retail products are unsecured bonds subject to the default risk of the issuer. We analyze the price‐setting policy of issuers with respect to this default risk. Using a long‐term data set of discount certificates in the German market, we apply a time series IVX‐approach to find that (i) quoted prices do de...
R. Baule, Falk Jensen· Journal of futures markets· 0 citations
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