University of Washington - Michael G. Foster School of Business
Robert A. Korajczyk
Northwestern University - Kellogg School of Management
University of Delaware - Alfred Lerner College of Business and Economics
Boston College - Carroll School of Management
July 28, 2014
An extensive literature documents heterogeneity in the delay of stock-price reaction to systematic shocks, implying that asset risk depends on investment horizon. We study the pricing of common risk factors across investment horizons. Value risk is priced over intermediate horizons, while liquidity poses a short-horizon risk. Conditioning horizon-factor exposures on firm characteristics indicates that characteristics, with the exception of momentum, are not priced beyond their contribution to systematic risk. The pricing of both intermediate-horizon value risk and short-horizon liquidity risk is more pronounced for assets held by investors with long investment horizons (over three years). Therefore, these investors appear to be the natural bearers of systematic risk. The results highlight the importance of investment horizon in determining risk premia.
Number of Pages in PDF File: 40
Keywords: asset pricing model, investment horizon, factors, characteristics
JEL Classification: G1, G12, G14working papers series
Date posted: July 22, 2012 ; Last revised: July 29, 2014
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