Macroeconomic risk and the cross-section of stock returns

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We develop a conditional version of the consumption capital asset pricing model (CCAPM) using the conditioning variable from the cointegrating relation among macroeconomic variables (dividend yield, term spread, default spread, and short-term interest rate). Our conditioning variable has a strong power to predict market excess returns in the presence of competing predictive variables. In addition, our conditional CCAPM performs approximately as well as Fama and French's (1993) three-factor model in explaining the cross-section of the Fama and French 25 size and book-to-market sorted portfolios. Our specification shows that value stocks are riskier than growth stocks in bad times, supporting the risk-based story. (C) 2011 Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2011-12
Language
English
Article Type
Article
Keywords

CONSUMPTION-BASED EXPLANATION; ASSET-PRICING ANOMALIES; BOOK-TO-MARKET; EXPECTED RETURNS; EQUITY RETURNS; CONDITIONAL CAPM; EMPIRICAL TESTS; LABOR INCOME; MODELS; VARIABLES

Citation

JOURNAL OF BANKING FINANCE, v.35, no.12, pp.3158 - 3173

ISSN
0378-4266
DOI
10.1016/j.jbankfin.2011.04.012
URI
http://hdl.handle.net/10203/104148
Appears in Collection
MT-Journal Papers(저널논문)
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