Correlation and the omitted variable: A tale of two prices

Han, Xing; Pan, Zheyao

dc.contributor.author	Han, Xing
dc.contributor.author	Pan, Zheyao
dc.date.accessioned	2023-03-06T03:42:19Z
dc.date.available	2023-03-06T03:42:19Z
dc.date.issued	2021-06
dc.identifier.citation	(2021). Financial Management, 50(2), 519-552.
dc.identifier.issn	0046-3892
dc.identifier.uri	https://hdl.handle.net/2292/63133
dc.description.abstract	We offer a new perspective on the low-beta anomaly by acknowledging the omitted-variable problem in the correlation component of beta: Correlation is “plagued” by firm size (the omitted variable) to exhibit a negative price. Once isolating the size impact, a hidden positive price emerges for the size-orthogonalized component of correlation. Further analyses suggest that (a) the positive price of the size-orthogonalized component is not due to mispricing, supporting the return comovement-based pricing channel; (b) the negative price of the size-explained component is related to illiquidity and coskewness.; (c) the omitted-variable problem also applies to the pricing of beta.
dc.language	en
dc.publisher	Wiley
dc.relation.ispartofseries	Financial Management
dc.rights	Items in ResearchSpace are protected by copyright, with all rights reserved, unless otherwise indicated. Previously published items are made available in accordance with the copyright policy of the publisher.
dc.rights.uri	https://researchspace.auckland.ac.nz/docs/uoa-docs/rights.htm
dc.subject	Social Sciences
dc.subject	Business, Finance
dc.subject	Business & Economics
dc.subject	beta anomaly
dc.subject	correlation
dc.subject	omitted variable bias
dc.subject	CROSS-SECTION
dc.subject	MARKET EQUILIBRIUM
dc.subject	RISK
dc.subject	RETURN
dc.subject	R-2
dc.subject	INFORMATION
dc.subject	VOLATILITY
dc.subject	VALUATION
dc.subject	ANOMALIES
dc.subject	SKEWNESS
dc.subject	1502 Banking, Finance and Investment
dc.title	Correlation and the omitted variable: A tale of two prices
dc.type	Journal Article
dc.identifier.doi	10.1111/fima.12333
pubs.issue	2
pubs.begin-page	519
pubs.volume	50
dc.date.updated	2023-02-03T08:19:22Z
dc.rights.holder	Copyright: The authors	en
pubs.author-url	http://gateway.webofknowledge.com/gateway/Gateway.cgi?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000571545000001&DestLinkType=FullRecord&DestApp=ALL_WOS&UsrCustomerID=6e41486220adb198d0efde5a3b153e7d
pubs.end-page	552
pubs.publication-status	Published
dc.rights.accessrights	http://purl.org/eprint/accessRights/RetrictedAccess	en
pubs.subtype	Article
pubs.subtype	Journal
pubs.elements-id	817163
dc.identifier.eissn	1755-053X
pubs.record-created-at-source-date	2023-02-03
pubs.online-publication-date	2020-09-22