Teaching Slides on Short and Long Horizon Behavioral Factors

We propose a theoretically-motivated factor model based on investor psychology and assess its ability to explain the cross-section of U.S. equity returns. Our factor model augments the market factor with two factors which capture long- and short-horizon mispricing. The long-horizon factor exploits the information in managers' decisions to issue or repurchase equity in response to persistent mispricing. The short-horizon earnings surprise factor, which is motivated by investor inattention and evidence of short-horizon underreaction, captures short-horizon anomalies. This three-factor risk-and-behavioral model outperforms other proposed models in explaining a broad range of return anomalies. Daniel, Hirshleifer, and Sun (2020) is available at https://ssrn.com/abstract=3086063. Note: For further details, see Daniel, Hirshleifer, and Sun, “Short- and Long-Horizon Behavioral Factors,” Review of Financial Studies, 2020, 33(4): 1673-1736.