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Returns Premia on Company Fundamentals

Kateryna Shapovalova

Université Paris I Panthéon-Sorbonne; Paris School of Economics (PSE)

Alexander Subbotin

Renaissance Finance

Thierry Chauveau

National Center for Scientific Research (CNRS)

February 26, 2011

This paper studies the excess returns on stocks, associated to various company fundamentals on a panel of US stocks from 1979 to 2008. The returns premia are measured using a random coefficient panel data model on the individual stock level. We show that the HML and SMB factors in the Fama and French model probably have no particular economic meaning as sources of systematic risk other than being proxies for the impact of the book-to-price and size characteristics. While the book-to-price ratio, market capitalization, past year sales growth and the share of reinvested profits generate significant premia, earnings history and forecasts are of little predictive power. We statistically confirm the time-varying nature of the style premia but find no strong evidence for the value and growth momentum in a multivariate setting when the systematic risk is controlled for. Some of the premia are positively correlated with the market return and between each other, while others seem to be unrelated. Variations in premia associated with companies' high internal growth and growth of sales are positively correlated between each other, with the market return and with the value premium. Variations of the size premium are probably driven by different factors.

Number of Pages in PDF File: 34

Keywords: Stock Returns, Company Fundamentals, Asset Pricing, Three-Factor Model, Style Momentum

JEL Classification: G10, G14

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Date posted: February 27, 2011  

Suggested Citation

Shapovalova, Kateryna and Subbotin, Alexander and Chauveau , Thierry, Returns Premia on Company Fundamentals (February 26, 2011). Available at SSRN: https://ssrn.com/abstract=1770744 or http://dx.doi.org/10.2139/ssrn.1770744

Contact Information

Kateryna Shapovalova (Contact Author)
Université Paris I Panthéon-Sorbonne ( email )
17, rue de la Sorbonne
Paris, IL 75005
Paris School of Economics (PSE) ( email )
48 Boulevard Jourdan
Paris, 75014 75014
Alexander Subbotin
Renaissance Finance ( email )
9, chemin Pierre de Ronsard
Courbevoie, 92400
Thierry Chauveau
National Center for Scientific Research (CNRS) ( email )
3, rue Michel-Ange
Paris cedex 16, 75794
33 1 44 07 82 68 (Phone)
33 1 44 07 82 70 (Fax)
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References:  26
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