Equilibrium Cross Section of Returns

Loading...
Thumbnail Image
Penn collection
Finance Papers
Degree type
Discipline
Subject
Finance and Financial Management
Funder
Grant number
License
Copyright date
Distributor
Author
Gomes, Joao F
Kogan, Leonid
Zhang, Lu
Contributor
Abstract

We construct a dynamic general equilibrium production economy to explicitly link expected stock returns to firm characteristics such as firm size and the book‐to‐market ratio. Stock returns in the model are completely characterized by a conditional capital asset pricing model (CAPM). Size and book‐to‐market are correlated with the true conditional market beta and therefore appear to predict stock returns. The cross‐sectional relations between firm characteristics and returns can subsist even after one controls for typical empirical estimates of beta. These findings suggest that the empirical success of size and book‐to‐market can be consistent with a single‐factor conditional CAPM model.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2003-01-01
Journal title
Journal of Political Economy
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection