Senior Fellows/Fellows

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Senior Fellows/Fellows

The FIN and PEAD Factors: Motivation, Construction, and Availability

David HIRSHLEIFER , Kent DANIEL, Lin SUN
This document provides an overview of the FIN and PEAD factors of Daniel, Hirshleifer, and Sun (2020) and describes their motivations, constructions, and availability. Based on investor psychology, Daniel, Hirshleifer, and Sun (2020) propose a theoretically motivated factor model that augments the market factor with two factors that capture long- and short-horizon mis-pricing. The long-horizon financing factor (FIN) exploits the information in managers’ decisions to issue or repurchase equity in response to persistent mis-pricing. The short-horizon earnings surprise factor (PEAD) is motivated by investor inattention and evidence of short-horizon under-reaction, and captures short-horizon mis-pricing. The 3-factor risk-and-behavioral model outperforms other proposed models in explaining a broad range of return anomalies.
Keywords: Factor Models, Behavioral Factors
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