“…Several reasons for the failure of the risk-return trade-off implied by the Capital Asset Pricing Theory have been discussed in the literature. Among those are channels associated with (1) leverage constraints (Asness et al, 2012;Black, 1972;Pedersen, 2014, Li, 2016), (2) benchmarked institutional investors (Baker et al, 2011;Brennan, 1993), (3) money illusion (Modigliani and Cohn, 1979;Cohen et al, 2005), (4) disagreement among investors (see, e.g., Hong and Sraer, 2011;Bali et al (2018)), ( 5) market-wide sentiment-induced mispricing (see, e.g., Shen and Yu, 2012;Asness et al, 2020). A recent study by Bali et al (2018) argues that the low-risk effect may be due to divergence of opinion among investors.…”