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Asset Pricing and Microcaps

Author

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  • Yuming Li

    (Department of Finance, College of Business and Economics, California State University)

Abstract

I study the pricing power of the microcap stocks with characteristics including accruals, new share issues, momentum and volatility, in addition to asset growth and profitability. After adjusting for the market excess return, I find that the return spreads formed from microcap stocks subsume the pricing power of those formed from other stocks. A microcap-based factor model outperforms many alternative models. The results are consistent with what MacKinlay and Pastor (2000) find that the additional factor that completes the pricing job of a factor model is a portfolio weighted towards mispriced securities.

Suggested Citation

  • Yuming Li, 2023. "Asset Pricing and Microcaps," Annals of Economics and Finance, Society for AEF, vol. 24(1), pages 119-140, May.
    • Handle: RePEc:cuf:journl:y:2023:v:24:i:1:li
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Anomalies; Microcaps; Factor models;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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