Pricing Deviation, Misvaluation Comovement, and Macroeconomic Conditions

Uncertainty in Firm Valuation and a Cross-Sectional Misvaluation Measure

“…However, after removing from LSV possible collinearity with other market factors, the seven-factor model exhibits robust results compared to the other considered factor models. We note that this exercise complements the work of Chang et al (2013), which provides evidence on the existence of a misvaluation factor, constructed starting from a relative valuation type model. Also, we compare the LSV with the UMO factor of Hirshleifer and Jiang (2010).…”

“…Coefficients that result to be significant at 5%, 1% and at any conventional confidence levels are marked, respectively, with one, two and three stars. Following Chang et al (2013) we interpret the variation of the absolute value of a misvaluation factor as the degree of misvaluation measured by the factor and we plot the daily absolute value of the logarithmic return of the UMO and LSV factor rescaled by their mean and standard deviation.…”

“…Using a volatility-adjusted mispricing z-score index -defined as the difference between the market price of the company and its expected fair value divided by the fair value distribution standard deviation -as a means to assess the misvaluation of a company, we investigate the long-standing issue that stock misvaluation is not instantaneously and fully eliminated by rational investors in the market, but rather is only corrected over time. In this respect, our study is related to the works of Hirshleifer and Jiang (2010) and Chang et al (2013). In the former, authors construct a financing-based misvaluation factor (UMO) from repurchase and new issue firms, after they identify common misvaluation across stocks based on firms' debt and equity financing.…”

Manacled short sellers and return premium: New evidence

“…First, SMN is a regulation-based misvaluation factor not yet addressed in the literature that differs from existing misvaluation factors, such as UMO of HJ and the MSV of Chang et al (2013). The factor UMO is a financing-based misvaluation factor built from repurchase and issue firms, MSV is formed on the basis of individual stocks' misvaluation due to their pricing deviations from industry norms, and SMN stems from short-selling regulation that permits only partial short sales for some stocks.…”

“…It is also worth noting that the factors UMO of HJ, MSV of Chang et al (2013) and NMS of Bai et al (2017) are all equal weighted and thus subject to noise-induced upward biases, which can be as large as over 50% of the corrected estimates (Asparouhova et al, 2013). Our set of SMN portfolios are either value weighted or return weighted, with various time lags used in calculating the weighting variables.…”