Expected Returns, Yield Spreads, and Asset Pricing Tests
52 Pages Posted: 7 Nov 2007
We construct firm-specific measures of expected equity returns using corporate bond yields, and replace standard ex-post average returns with our expected-return measures in asset pricing tests. We find that the market beta is significantly priced in the cross-section of expected returns. The expected size and value premia are positive and countercyclical, but there is no evidence of positive expected momentum profits.
Keywords: Expected returns, risk factors, systematic risk, yield spreads
JEL Classification: G12, E44
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