Where Do Betas Come from? Asset Price Dynamics and the Sources of Systematic Risk

40 Pages Posted: 27 Apr 2000 Last revised: 3 Jan 2002

See all articles by John Y. Campbell

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Jianping Mei

New York University (NYU) - Department of Finance

Date Written: April 1993

Abstract

This paper breaks assets' betas with common factors into components attributable to news about future cash flows, real interest rates, and excess returns. To achieve this decomposition the paper uses a vector autoregressive time-series model and an approximate log-linear present value relation. The betas of industry and size portfolios with the market are largely attributed to changing expected returns. Betas with inflation and industrial production reflect opposing cash flow and expected return effects. The paper also shows how asset pricing theory restricts the expected excess return components of betas.

Suggested Citation

Campbell, John Y. and Mei, Jianping, Where Do Betas Come from? Asset Price Dynamics and the Sources of Systematic Risk (April 1993). NBER Working Paper No. w4329. Available at SSRN: https://ssrn.com/abstract=227030

John Y. Campbell (Contact Author)

Harvard University - Department of Economics ( email )

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HOME PAGE: http://scholar.harvard.edu/campbell

National Bureau of Economic Research (NBER)

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Jianping Mei

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
United States
212-998-0354 (Phone)
212-995-4221 (Fax)

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