Abstract

http://ssrn.com/abstract=1752543
 
 

References (122)



 
 

Citations (14)



 


 



Market Expectations in the Cross Section of Present Values


Bryan T. Kelly


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Seth Pruitt


Arizona State University (ASU) - Finance Department

July 1, 2012

Journal of Finance, Forthcoming
Chicago Booth Research Paper No. 11-08
AFA 2013 San Diego Meetings Paper
Fama-Miller Working Paper

Abstract:     
Returns and cash flow growth for the aggregate U.S. stock market are highly and robustly predictable. Using a single factor extracted from the cross section of book- to-market ratios, we find an out-of-sample return forecasting R-squared as high as 13% at the annual frequency (0.9% monthly). We document similar out-of-sample predictability for returns on value, size, momentum and industry-sorted portfolios. We present a model linking aggregate market expectations to disaggregated valuation ratios in a dynamic latent factor system. We find that spreads in growth and value portfolios’ exposures to economic shocks are key to identifying predictability and are consistent with duration-based theories of the value premium. Our findings suggest that discount rates are far less persistent, and their shocks far more volatile, than implied by leading asset pricing models.

Number of Pages in PDF File: 52

JEL Classification: G11, G12, G17

working papers series





Download This Paper

Date posted: February 2, 2011 ; Last revised: September 11, 2012

Suggested Citation

Kelly, Bryan T. and Pruitt, Seth, Market Expectations in the Cross Section of Present Values (July 1, 2012). Journal of Finance, Forthcoming; Chicago Booth Research Paper No. 11-08; AFA 2013 San Diego Meetings Paper; Fama-Miller Working Paper . Available at SSRN: http://ssrn.com/abstract=1752543 or http://dx.doi.org/10.2139/ssrn.1752543

Contact Information

Bryan T. Kelly (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8359 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Seth Pruitt
Arizona State University (ASU) - Finance Department ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
Feedback to SSRN


Paper statistics
Abstract Views: 5,847
Downloads: 1,444
Download Rank: 6,400
References:  122
Citations:  14

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.360 seconds