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Author ORCID Identifier



Open Access Dissertation

Document Type


Degree Name

Doctor of Philosophy (PhD)

Degree Program


Year Degree Awarded


Month Degree Awarded


First Advisor

Sanjay Nawalkha

Second Advisor

Mila Getmansky Sherman

Subject Categories

Finance and Financial Management


This dissertation aims to shed light on the source of the asset pricing anomalies by investigating behavioral and rational explanations. The first essay, “Asset Efficiency and the Asset Growth Anomaly,” examines the source of the asset growth anomaly. I present findings that the anomaly is driven by inefficient firms, which support the behavioral hypothesis that investors on average underreact to some firms’ overexpansion. Firms with past records of high asset efficiency relative to their industry peers do not suffer lower stock performance following high growth. The overarching impact of asset efficiency shows that firm skill is highly relevant, for effective corporate strategy should balance growth with capability to maintain and profit from that growth. The next chapter, “Do Financing Costs Matter for the Investment Anomalies?” shows supporting evidence for a shared role of behavioral and rational elements in explaining the anomalies. It comprehensively evaluates whether firms’ financing constraints explain the investment anomalies, including the asset growth anomaly, incorporating advanced proxies for financing constraints. The main contribution is to demonstrate that both mispricing and investment-friction channels reinforce each other in explaining the negative investment-return relation. The third chapter, “Style Investing: New Evidence from Mutual Fund Flows,” empirically validates the style-investing behavior of mutual fund investors and explores the pricing implication for stocks by utilizing mutual fund flows. Barberis and Shleifer (2003) initially explore the idea of style investing with an assumption that investors choose styles based on the recent past style performance. I find evidence that mutual fund investors allocate to winner styles and withdraw from loser styles based on the recent past style performance, consistently with Barbaris and Shleifer’s assumption. Next, I examine the pricing implications of the mutual fund flows by style. The evidence shows the Granger-causality of the style flows and the underlying stock returns in both directions. Neither the rationalists nor the behavioralists have been able to comprehensively explain all of financial market dynamics. This thesis urges the current asset pricing research to stay open-minded to consider various possibilities and viewpoints and be prepared to come up with narratives not confined to a single set of theory.