The cross section of expected stock returns eugene f. This cited by count includes citations to the following articles in scholar. Gyorgy varga, ricardo brito abstract in this article, we have shown that the size characteristic of individual stocks is the most powerful variable for explaining average returns in brazil. Investment horizon and the cross section of expected returns. Forecasts based on longer histories of fm slopes work best and, statistically, are quite strongly related to subsequent annual returns. Another look at idiosyncraticvolatility and expected returns 27 is not robust under different choices of data frequency, weighting scheme, and breakpoints in the construction of idiosyncratic volatilitysorted portfolios. We employ a gmm testing procedure in which the main focus of the t. Pdf this paper explores the ability of the capital asset pricing model.
Our goal is to provide guidance as to the appropriate significance level using a multiple testing framework. Another look at the crosssection of expected stock returns s. Size and booktomarket factors in earnings and returns. French abstract two easily measured variables, size and booktomarket equity, combine to capture the cross sectional variation in average stock returns associated with market 3, size, leverage, booktomarket equity, and earningsprice ratios. The crosssection of expected stock returns critical finance. The cross section of expected stock returns fama, who teaches at the university of chicagos graduate school of business, and french, a professor at dartmouths tuck business school, wrote that beta or risk of a portfolio didnt explain returns, as financial theory would dictate. A reexamination of firm size, booktomarket, and earnings price in the crosssection of expected stock returns volume 32 issue 4 dongcheol kim. Second, several authors found a value effect that returns are predicted by ratios of. The relation between idiosyncratic volatility and stock returns has been extensively analyzed by the past studies. Roberts june 2017 draft abstract using data spanning the 20th century, we show that the majority of accountingbased return anomalies, including investment and pro tability, are most likely an artifact of data snooping.
Crosssectional asset pricing, capm, return forecasting. Expectations and the crosssection of stock returns rafael. The cross section of expected stock returns in brazil autoria. Similarly, looking down the columns of the average returns matrix shows a.
Thus, we look for evidence on the pricing of the buy and sellorder illiquidity measures in the crosssection of expected stock returns. Sloan, 112116 page 2 6 lack of timeliness and noise as explanations for the low contemporaneous returnearnings association, coauthored with daniel collins, s. Sellside illiquidity and the cross section of expected stock returns abstract the demand for immediacy is likely to be stronger for sellers of securities than for buyers since investors are more likely to have a pressing need to raise cash than to exchange cash for securities. Lo and mackinlay contend that the degree of data mining bias increases with the number of studies published on the topic. Capital asset pricing with a stochastic horizon journal of. Given that so many papers have attempted to explain the same crosssection of expected returns, statistical inference should not be based on a single test perspective. The study provides convincing evidence of the presence of the size and value premia on the jse.
Asset pricing models, cross section of expected stock returns and financial market anomalies. Fundamental analysis and the crosssection of stock returns. Crash sensitivity and the crosssection of expected stock. Overall, stock returns seem to tell us little, if anything, about the behaviour of exchange rates. For the period 19731992, we test for a relationship between expected returns and market value, booktomarket equity, leverage, earningsprice ratio, and beta. This study takes another look at the crosssection of average returns on the jse.
Size and booktomarket factors in earnings and returns 3 market, size, and beme factors in earnings in much the same way that their stock returns load on the market, size, and beme factors in returns. Expected stock returns idiosyncratic return volatility cross section 1. Asset pricing models, cross section of expected stock returns. Crash sensitivity and the cross section of expected stock returns abstract this paper examines whether investors receive compensation for holding crashsensitive stocks. The authors examination of the cross section of expected returns reveals economically and statistically significant compensation about 6 to 9 percent per annum for beta risk when betas are estimated from timeseries regressions of annual portfolio returns on the annual return on the equally weighted market index. The history of the cross section of stock returns juhani t. Szymanowska, and inflation risk and the cross section of stock returns, by fernando duarte. Citations of the crosssection of expected stock returns. Another look at the crosssection of expected stock returns.
However, earnings do not add any additional information or any predictive power after controlling for size and booktomarket fama and french, 1992, 2008. This paper was previously issued under the title timevarying inflation risk and the cross section of stock returns. We capture the crash sensitivity of stocks by their lower tail dependence ltd with the market based on copulas. Sloan abstract our examination of the crosssection of expected returns reveals economically and statistically significant compensation about 6 to 9 percent per annum for beta risk. Thus, they conclude that beta is neither a single relevant risk measure nor a subset of. Another look at idiosyncratic volatility and expected returns. Sellside illiquidity and the crosssection of expected stock. Sellorder liquidity and the crosssection of expected stock. The views expressed in this paper are those of the authors and do not. Another look at the crosssection of expected stock returns created date.
A reexamination of firm size, booktomarket, and earnings price in the cross section of expected stock returns volume 32 issue 4 dongcheol kim. Using data from the tokyo stock exchange, we study how beta, size, and ratio of book to market equity beme account for the cross section of expected stock returns over different lengths of investment horizons. We examine the crosssection of expected returns for uk equities. This paper provides an extensive international analysis of the cross sectional return predictive power of a variety of firmlevel profitability measures, calculated from different combinations of three important measures of earnings gross profit, operating income, and ebit and four scaling variables enterprise value, book value of assets, market value of equity, and book value of. The fact that the common factors in returns mirror common factors in. Another look at the crosssection of average returns on. We find that sellorder illiquidity is priced more strongly in the crosssection of expected stock returns than is buyorder illiquidity. Crosssectional analysis is a type of analysis that an investor, analyst or portfolio manager may conduct on a company in relation to that companys industry or industry peers. Investment horizon and the functional form of the capital asset pricing model. A reexamination of firm size, booktomarket, and earnings.
However, a number of researchers have criticized the famafrench papers. Crash sensitivity and the crosssection of expected stock returns abstract this paper examines whether investors receive compensation for holding crashsensitive stocks. An examination of the fama and french threefactor model. This paper provides an extensive international analysis of the crosssectional return predictive power of a variety of firmlevel profitability measures, calculated from different combinations of three important measures of earnings gross profit, operating income, and ebit and four scaling variables enterprise value, book value of assets, market value of equity, and book value of. The same procedure is used to compute the growth rate for every period between period t 5 and the year of formation.
The crosssection of expected stock returns eugene f. The cross section of expected stock returns 5 the fm slopes. Whether one looks at portfolios sorted on b alone table. Introduction there is a growing literature documenting a negative relationship between observed volatility and future stock returns. The cross section of stock returns is arguably the most researched and published topic in finance. The relation between booktomarket equity and returns is weaker and less consistent than that in fama and french 1992. Second, the ratio of booktomarket equity and size are found to be the most significant variables that can account for the cross section of expected stock returns. The crosssection of expected stock returns in brazil. The cross section of cashflow volatility and expected stock. Whats the relationship between stock returns and exchange. It is well known that the volatility of stock returns varies over time. The growth rate in sales presented in the article is the geometric average of the com pounded annual growth rates. Pukthuanthongle and visaltanachoti 2009, conducted a cross country analysis on idiosyncratic volatility and stock returns and found that the idiosyncratic volatility has a positive relationship. The crosssection of expected stock returns 5 the fm slopes.