University of Washington - Michael G. Foster School of Business
Robert A. Korajczyk
Northwestern University - Kellogg School of Management
University of Delaware - Alfred Lerner College of Business and Economics
Boston College - Carroll School of Management
April 11, 2015
Journal of Financial and Quantitative Analysis (JFQA), 51 (December 2016), 1769-1793.
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.
Number of Pages in PDF File: 59
Keywords: asset pricing model, investment horizon, factors, characteristics
JEL Classification: G1, G12, G14
Date posted: July 22, 2012 ; Last revised: December 28, 2016