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Abstract
Popularity is a broad concept that can help explain valuation and the permanent market premiums (for example, the equity risk premium, size, value, liquidity, and so on). Liquidity is popular, whereas risk is unpopular. The authors explain how popularity can also help explain temporary mispricing (for example, stocks that the market gets overly excited about). In general, the less popular a security, the lower the valuation but the higher the expected return.
TOPICS: Exchanges/markets/clearinghouses, factor-based models, in markets
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