Abstract

https://ssrn.com/abstract=1986787
 
 

References (98)



 


 



Short-Term Interest Rates and Stock Market Anomalies


Paulo F. Maio


Hanken School of Economics - Department of Finance and Statistics

Pedro Santa-Clara


New University of Lisbon - Nova School of Business and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

February 7, 2017

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

Abstract:     
We present a simple 2-factor model that helps explaining several capital asset pricing model (CAPM) anomalies (value premium, return reversal, equity duration, asset growth, and inventory growth). The model is consistent with Merton's intertemporal CAPM (ICAPM) framework and the key risk factor is the innovation on a short-term interest rate, the Fed funds rate or the T-bill rate. This model explains a large fraction of the dispersion in average returns of the joint market anomalies. Moreover, the model compares favorably with alternative multifactor models widely used in the literature. Hence, short-term interest rates seem to be relevant for explaining several dimensions of cross-sectional equity risk premia.

Number of Pages in PDF File: 58

Keywords: cross-section of stock returns; asset pricing; intertemporal CAPM; state variables; linear multifactor models; predictability of returns; value premium; long-term reversal in returns; equity duration anomaly; corporate investment anomaly; inventory growth anomaly

JEL Classification: E44, G12, G14


Open PDF in Browser Download This Paper

Date posted: January 17, 2012 ; Last revised: February 10, 2017

Suggested Citation

Maio, Paulo F. and Santa-Clara, Pedro, Short-Term Interest Rates and Stock Market Anomalies (February 7, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1986787 or http://dx.doi.org/10.2139/ssrn.1986787

Contact Information

Paulo F. Maio (Contact Author)
Hanken School of Economics - Department of Finance and Statistics ( email )
FI-00101 Helsinki
Finland
Pedro Santa-Clara
New University of Lisbon - Nova School of Business and Economics ( email )
Lisbon
Portugal
HOME PAGE: http://docentes.fe.unl.pt/~psc/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 2,431
Downloads: 486
Download Rank: 44,281
References:  98