The Characteristics that Provide Independent Information about Average U.S. Monthly Stock Returns

80 Pages Posted: 9 May 2013 Last revised: 16 Oct 2016

Jeremiah Green

Pennsylvania State University

John R. M. Hand

University of North Carolina Kenan-Flagler Business School

Frank Zhang

Yale School of Management

Date Written: October 14, 2016

Abstract

We take up Cochrane’s (2011) challenge to identify the firm characteristics that provide independent information about average U.S. monthly stock returns by simultaneously including 94 characteristics in Fama-MacBeth regressions that avoid overweighting microcaps and adjust for data snooping bias. We find that while 12 characteristics are reliably independent determinants in non-microcap stocks during 1980-2014 as a whole, return predictability fell sharply in 2003 such that just two characteristics have been independent determinants since then. Outside of microcaps, the hedge returns to exploiting characteristics-based predictability have also been insignificantly different from zero since 2003.

Keywords: Firm characteristics; anomalies; cross-section; average U.S. monthly returns

JEL Classification: G1, M4

Suggested Citation

Green, Jeremiah and Hand, John R. M. and Zhang, Frank, The Characteristics that Provide Independent Information about Average U.S. Monthly Stock Returns (October 14, 2016). Available at SSRN: https://ssrn.com/abstract=2262374 or http://dx.doi.org/10.2139/ssrn.2262374

Jeremiah Green

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

John R. M. Hand (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3173 (Phone)
919-962-4727 (Fax)

Frank Zhang

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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