Expected Returns, Yield Spreads, and Asset Pricing Tests

Abstract:     
We use corporate bond yield spreads to gauge investors' return expectations. We then replace standard ex-post, averaged measures of return with our ex-ante return measures in asset pricing assets. We find that the market beta plays a significant role in the cross-section of returns when expectations are measured ex-ante. The expected size and value premia are significantly positive and countercyclical, but there is no evidence of ex-ante positive momentum profits.

Number of Pages in PDF File: 48

Keywords: Expected Returns, Risk Factors, Systematic Risk, Yield Spreads

JEL Classification: G12, E44

working papers series