59 Pages Posted: 22 Jul 2012 Last revised: 21 Jun 2018
Date Written: April 11, 2015
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: Suggested Citation