Determinants of Expected Stock Returns: Large Sample Evidence from the German Market
University of Cologne - Faculty of Management, Economics and Social Sciences
University of Cologne - Department of Finance; University of Cologne - Centre for Financial Research (CFR)
University of Cologne - Department of Finance & Centre for Financial Research (CFR)
This paper conducts a comprehensive asset pricing study based on a unique dataset for the German stock market. For the period 1963 to 2006 we show that value characteristics and momentum explain the cross-section of stock returns. Corresponding factor portfolios have significant premiums across various double-sorted characteristic-based test assets. In a horse race of competing asset pricing models the Fama-French 3-factor model does a poor job in explaining average stock returns. The Carhart 4-factor model performs much better, but a 4- factor model containing an earnings-to-price factor instead of a size factor does even slightly better.
Number of Pages in PDF File: 37
Keywords: asset pricing, characteristics, risk factors, multifactor models, Germany
JEL Classification: G12working papers series
Date posted: August 6, 2010 ; Last revised: July 28, 2011
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