Evidence on the Characteristics of Cross Sectional Variation in Stock Returns

40 Pages Posted: 27 Aug 2000 Last revised: 25 Mar 2008

See all articles by Kent D. Daniel

Kent D. Daniel

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: June 1996

Abstract

Firm size and book-to-market ratios are both highly correlated with the returns of common stocks. Fama and French (1993) have argued that the association between these firm characteristics and their stock returns arises because size and book-to-market ratios are proxies for non-diversifiable factor risk. In contrast, the evidence in this paper indicates that the return premia on small capitalization and high book-to-market stocks does not arise because of the co-movements of these stocks with pervasive factors. It is the firm characteristics and not the covariance structure of returns that explain the cross-sectional variation in stock returns.

Suggested Citation

Daniel, Kent D. and Titman, Sheridan, Evidence on the Characteristics of Cross Sectional Variation in Stock Returns (June 1996). NBER Working Paper No. w5604. Available at SSRN: https://ssrn.com/abstract=225542

Kent D. Daniel (Contact Author)

Columbia Business School - Finance and Economics ( email )

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Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

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United States
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512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

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