ETF (Mis)pricing
ETF (Mis)pricing
It is assumed in the news-based model of stock pricing (NBSPM) that stock prices are determined with macroeconomic news (modeled with the total market return in the spirit of CAPM), industry news (modeled with the relevant industry ETF returns), and the company-specific news and momentum that are described using an optimal ARMA-GARCH model. In this work, the NBSPM accuracy for forecasting stock prices is compared with that of the momentum-enhanced five-factor Fama-French model. The results for a representative list of holdings of nine major US equity sector ETFs demonstrates superiority of the NBSPM in most cases.
It is assumed in the news-based model of stock pricing (NBSPM) that stock prices are determined with macroeconomic news (modeled with the total market return in the spirit of CAPM), industry news (modeled with the relevant industry ETF returns), and the company-specific news and momentum that are described using an optimal ARMA-GARCH model. In this work, the NBSPM accuracy for forecasting stock prices is compared with that of the momentum-enhanced five-factor Fama-French model. The results for a representative list of holdings of nine major US equity sector ETFs demonstrates superiority of the NBSPM in most cases.

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