Determinants of Expected Stock Returns: Large Sample Evidence from the German Market
37 Pages Posted: 6 Aug 2010 Last revised: 28 Jul 2011
Date Written: July 2011
This paper conducts a comprehensive asset pricing study based on a unique dataset for the German stock market. For the period 1963 to 2006 we show that value characteristics and momentum explain the cross-section of stock returns. Corresponding factor portfolios have significant premiums across various double-sorted characteristic-based test assets. In a horse race of competing asset pricing models the Fama-French 3-factor model does a poor job in explaining average stock returns. The Carhart 4-factor model performs much better, but a 4- factor model containing an earnings-to-price factor instead of a size factor does even slightly better.
Keywords: asset pricing, characteristics, risk factors, multifactor models, Germany
JEL Classification: G12
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