A common pattern across asset pricing anomalies

Finance Research Letters(2022)

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摘要
The Arbitrage Pricing Theory implies that portfolios with small R2 should have large alphas. We show that, as a consequence, the prominent asset pricing anomalies share a common trait: abnormal returns are driven mainly by stocks having smaller and less stable correlations with the market portfolio. Univariate sorts based on five-year rolling-window correlations with the market excess return produce patterns similar to those based on size, value, profitability, investment, price ratios, and earnings and price momenta. A correlation-driven factor that captures this common property makes some of the Fama–French factors redundant in regressions with the univariate sorts.
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