On the Cross Section of Conditionally Expected Stock Returns PDF Download

Author: Hui Guo
Publisher:
ISBN:
Category : Stock price forecasting
Languages : en
Pages : 41

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Author: Lei Xu
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Author: Zhenyu Wang
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Most empirical studies of the static CAPM assume that betas remain constant over time and that the return on the value-weighted portfolio of all stocks is a proxy for the return on aggregate wealth. The general consensus is that the static CAPM is unable to explain satisfactorily the cross-section of average returns on stocks. We assume that the CAPM holds in a conditional sense, i.e., betas and the market risk premium vary over time. We include the return on human capital when measuring the return on aggregate wealth. Our specification performs well in explaining the cross-section of average returns.

Author: Joao F. Gomes
Publisher:
ISBN:
Category :
Languages : en
Pages : 71

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We explicitly link expected stock returns to firm characteristics such as firm size and book-to-market ratio in a dynamic general equilibrium production economy. Despite the fact that stock returns in the model are characterized by an intertemporal CAPM with the market portfolio as the only factor, size and book-to-market play separate roles in describing the cross-section of returns. These firm characteristics appear to predict stock returns because they are correlated with the true conditional market beta of returns. These cross-sectional relations can subsist after one controls for a typical empirical estimate of market beta. This lends support to the view that the documented ability of size and book-to-market to explain the cross-section of stock returns is not necessarily inconsistent with a single-factor conditional CAPM model. Our model also gives rise to a number of additional implications for the cross-section of returns. In this paper, we focus on the business cycle properties of returns and firm characteristics. Our results appear consistent with the limited existing evidence and provide a benchmark for future empirical studies.cycle properties.

Author: Turan G. Bali
Publisher:
ISBN:
Category :
Languages : en
Pages : 56

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This paper presents evidence for a significantly positive link between the dynamic conditional beta and the cross-section of daily stock returns. An investment strategy that takes a long position in stocks in the highest conditional beta decile and a short position in stocks in the lowest conditional beta decile produces average returns and alphas in the range of 0.60% to 0.80% per month. We provide an investor attention based explanation of this finding. We show that stocks with high conditional beta have strong attention-grabbing characteristics, leading to higher fraction of buyer-initiated trades for these stocks. We also find that stocks recently bought perform significantly better than stocks recently sold. Hence, the high beta stocks that investors are more likely to buy have higher expected returns than the low beta stocks that investors are more likely to sell.

Author: Stijn Claessens
Publisher: World Bank Publications
ISBN:
Category : Rate of return
Languages : en
Pages : 28

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Author: Adriana S. Cordis
Publisher:
ISBN:
Category :
Languages : en
Pages : 38

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Clean-surplus accounting implies that a firm's stock return can be decomposed into a function of the firm's return on equity, book-to-market equity ratio, and dividend-price ratio. Consequently, the variation in these ratios across firms should be indicative of cross-sectional variation in conditional expected returns. Although this prediction can be tested via cross-sectional regressions, the analysis suggests that ordinary-least-squares estimates of the regression coefficients are sensitive to extreme return observations. To address this issue, I develop an outlier-resistant approach for estimating the regression coefficients. The outlier-resistant estimates provide substantial evidence of the predicted cross-sectional relation between accounting ratios and expected returns.

Author: Eugene F. Fama
Publisher:
ISBN:
Category : Rate of return
Languages : en
Pages : 41

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Author: Thomas B. Fomby
Publisher: Emerald Group Publishing
ISBN: 1784411825
Category : Political Science
Languages : en
Pages : 772

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This volume honors Professor Peter C.B. Phillips' many contributions to the field of econometrics. The topics include non-stationary time series, panel models, financial econometrics, predictive tests, IV estimation and inference, difference-in-difference regressions, stochastic dominance techniques, and information matrix testing.

Author: Gaston Michel
Publisher: Springer Science & Business Media
ISBN: 3834994960
Category : Business & Economics
Languages : en
Pages : 182

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Gaston Michel investigates whether shocks to real estate markets constitute an important source of the risk that is priced in the cross section of equity returns. His results document that real estate risk explains a large part of the cross-sectional variation in equity returns. He shows that an alternative modeI which includes the real estate factor performs as well as or better than the Fama-French model in pricing equity returns.