Finance Papers

Document Type

Journal Article

Date of this Version

2003

Publication Source

Journal of Political Economy

Volume

111

Issue

4

Start Page

693

Last Page

732

DOI

10.1086/375379

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.

Copyright/Permission Statement

© 2003 by The University of Chicago.

Additional Files

GomesKoganZhangErratum.pdf (26 kB)
Erratum

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Date Posted: 27 November 2017

This document has been peer reviewed.