Conditioning Variables and the Cross-Section of Stock Returns

Fuqua School of Business Working Paper No. 9902

56 Pages Posted: 20 Apr 1999

See all articles by Wayne E. Ferson

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Multiple version iconThere are 2 versions of this paper

Date Written: February 1999

Abstract

Previous studies have identified predetermined variables that have some power to explain the time series of stock and bond returns. This paper shows that loadings on the same variables also provide significant cross-sectional explanatory power for stock portfolio returns. These loadings are important, over and the above the variables advocated by Fama and French (1993) in their three factor "model," and also the four factors of Elton, Gruber and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The lagged variables reveal information about the cross-section of expected returns that is not captured by popular asset pricing factors. These results carry implications for risk analysis, performance measurement, cost-of-capital calculations and other applications.

JEL Classification: G0, G1

Suggested Citation

Ferson, Wayne E. and Harvey, Campbell R., Conditioning Variables and the Cross-Section of Stock Returns (February 1999). Fuqua School of Business Working Paper No. 9902. Available at SSRN: https://ssrn.com/abstract=152910 or http://dx.doi.org/10.2139/ssrn.152910

Wayne E. Ferson

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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