Expected Returns, Yield Spreads, and Asset Pricing Tests
Posted: 2 Jul 2008
Date Written: May 2008
We construct firm-specific measures of expected equity returns using corporate bond yields, and replace standard ex postaverage 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 premiums are positive and countercyclical, but there is no evidence of positive expected momentum profits.
Keywords: G12, E44
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