FIRM CHARACTERISTICS AND MISPRICING

Abstract

The purpose of this study is to explore unconditional systematic relationships between firm characteristics and mispricing. More specifically, I test firm characteristics that are shown to be sensitive to sentiments as determined by Baker & Wurgler (2006). Firm characteristics tested include age, market equity size, volatility of returns (sigma), positive earnings to book equity ratio, dividend to book equity ratio, plant, property and equipment to asset ratio, research and development to asset ratio, book to market equity ratio, external financing to assets ratio and percentage sales growth decile. Our hypothesis is that should firm characteristics affect mispricing, there should be systematic differences in mispricing across decile portfolios sorted by firm characteristics.