New return anomalies and new-Keynesian ICAPM

•I propose a new asset pricing model with new-Keynesian factors.•This model explains the distress anomaly, and price and earning momentums.•Capital market imperfections and monetary policy are critical for return anomalies.

I propose a new multi-factor asset pricing model with new-Keynesian factors to explain stock return anomalies from 1972Q1 to 2009Q2. This new model explains the average returns across testing portfolios formed on financial distress, momentum, and standardized unexpected earnings with misspecification-robust statistics. Test portfolios formed on net stock issues and total accruals are also partly explained by new-Keynesian factors. Two monetary policy factors play an important role in explaining these new anomalies. The credit aspect of these new anomalies suggests an economic rationale for the model through capital market imperfections and the credit channel of monetary policy mechanism.