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Horizon Pricing

59 Pages Posted: 22 Jul 2012 Last revised: 28 Dec 2016

Avraham Kamara

University of Washington - Michael G. Foster School of Business

Robert A. Korajczyk

Northwestern University - Kellogg School of Management

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics

Ronnie Sadka

Boston College - Carroll School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 11, 2015

Abstract

The literature documents heterogeneity in the delay of stock-price reaction to systematic shocks, implying that asset risk depends on investment horizon. We study the pricing of risk factors across investment horizons. Value (liquidity) risk is priced over intermediate (short) horizons. Conditioning horizon-factor exposures on firm characteristics indicates that characteristics, with the exception of momentum, are not priced beyond their contribution to systematic risk. Long-horizon institutional investors overweight assets with high intermediate-horizon exposures to HML risk and high short-horizon exposures to liquidity risk. The results highlight the importance of investment horizon in determining risk premia.

Keywords: asset pricing model, investment horizon, factors, characteristics

JEL Classification: G1, G12, G14

Suggested Citation

Kamara, Avraham and Korajczyk, Robert A. and Lou, Xiaoxia and Sadka, Ronnie, Horizon Pricing (April 11, 2015). Journal of Financial and Quantitative Analysis (JFQA), 51 (December 2016), 1769-1793.. Available at SSRN: https://ssrn.com/abstract=2114987 or http://dx.doi.org/10.2139/ssrn.2114987

Avraham Kamara

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States
206-543-0652 (Phone)
206-221-6856 (Fax)

Robert A. Korajczyk (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States

Ronnie Sadka

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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