Investors Overprice Weird Stocks?

Do optimists dominate the pricing of stocks for firms with unusual/difficult to interpret fundamentals, thereby overpricing them? In his December 2025 paper entitled “Hard to Process: Atypical Firms and the Cross-Section of Expected Stock Returns”, Sebastian Weibels relates future stock returns to a measure of the atypicality (ATYP) of firm fundamentals via an autoencoder (unsupervised machine learning model). The autoencoder learns the typical pattern of fundamentals across firms, and ATYP aggregates individual firm deviations from that pattern. High-ATYP firms present unusual combinations of characteristics difficult to understand. Using monthly values for 117 firm fundamentals and associated stock prices for NYSE, AMEX and NASDAQ common stocks, excluding financial and utility sectors and stocks trading below $1, during 1971 through 2023, he finds that: (more…)