Mispricing at the Oslo stock exchange : how suitable are the mispricing models of Stambaugh and Yuan for describing norwegian stock returns?

Abstract

This thesis assesses the suitability of the three- and four-factor mispricing models of Stambaugh and Yuan (2017) in describing Norwegian stock returns in the period between 1998 and 2018. As such, it is one of the first studies of their mispricing factors applied to other capital markets. Using a new data set I find that all of the mispricing factors are found to have a significant effect in describing cross-sectional return differences. In constructing single- and double-sorted test assets on a wide range of anomalies, I observe a strong momentum effect but little evidence of a size and liquidity effect at the Oslo Stock Exchange, inconsistent with some of the earlier evidence from the Norwegian market. When testing the mispricing models against the three-factor models of Fama and French (1993) and Næs, Skjeltorp, and Ødegaard (2009), I find that none of the asset pricing models consistently outperform the others in neither absolute nor relative terms, and that the results of the asset pricing tests are sensitive to both the choice of test assets and weighting schemes. In spanning regressions, neither the three-factor model of Fama and French (1993) nor the three-factor model of Næs et al. (2009) are able to accommodate any the mispricing factors.