Conditioning Variables and the Cross-Section of Stock Returns

60 Pages Posted: 28 Jun 2000 Last revised: 28 Aug 2022

See all articles by Wayne E. Ferson

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 1999

Abstract

Previous studies have identified predetermined variables that have some power to explain the time series of stock and bond returns. This paper shows that loadings on the same variables also provide significant cross-sectional explanatory power for stock portfolio returns. These loadings are important, over and the above the variables advocated by Fama and French (1993) in their three factor model,' and also the four factors of Elton, Gruber and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The lagged variables reveal information about the cross-section of expected returns that is not captured by popular asset pricing factors. These results carry implications for risk analysis, performance measurement, cost-of-capital calculations and other applications.

Suggested Citation

Ferson, Wayne E. and Harvey, Campbell R., Conditioning Variables and the Cross-Section of Stock Returns (March 1999). NBER Working Paper No. w7009, Available at SSRN: https://ssrn.com/abstract=227412

Wayne E. Ferson (Contact Author)

University of Southern California ( email )

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HOME PAGE: http://www-rcf.usc.edu/~ferson/

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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

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United States

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