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Article

Popularity and Asset Pricing

Thomas M. Idzorek and Roger G. Ibbotson
The Journal of Investing Spring 2017, 26 (1) 46-56; DOI: https://doi.org/10.3905/joi.2017.26.1.046
Thomas M. Idzorek
is head of investment methodologies and economic research at Morningstar, Inc., and Morningstar Investment Management LLC, in Chicago, IL. thomas.idzorek@morningstar.com
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Roger G. Ibbotson
is chairman and chief investment officer of Zebra Capital Management, LLC, in Milford, CT, and professor in the practice emeritus of finance at the Yale School of Management in New Haven, CT. roger.ibbotson@yale.edu
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Abstract

Less-popular securities have lower prices but higher expected returns. In the efficient market framework, this is usually a risk that is disliked. Behavior finance posits numerous investor biases (e.g., affect) under which prices are determined by emotional sentiment. Popularity unifies both approaches by pricing security characteristics according to how much they are rationally or irrationally (emotionally) liked. Characteristics that are relatively permanently disliked result in pricing discounts and return premiums. A linear, popularity-based pricing equation is suggested.

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The Journal of Investing: 26 (1)
The Journal of Investing
Vol. 26, Issue 1
Spring 2017
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Popularity and Asset Pricing
Thomas M. Idzorek, Roger G. Ibbotson
The Journal of Investing Feb 2017, 26 (1) 46-56; DOI: 10.3905/joi.2017.26.1.046

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Popularity and Asset Pricing
Thomas M. Idzorek, Roger G. Ibbotson
The Journal of Investing Feb 2017, 26 (1) 46-56; DOI: 10.3905/joi.2017.26.1.046
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  • Article
    • Abstract
    • THE CONCEPT OF POPULARITY
    • PRECURSORS TO THE POPULARITY APPROACH
    • PREMIUMS, ANOMALIES, AND POPULARITY
    • EFFICIENT MARKETS, BEHAVIORAL, OR SOMETHING ELSE?
    • A POPULARITY-BASED ASSET PRICING FORMULA
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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