Cross-Sectional Asset Pricing with Individual Stocks: Betas versus Characteristics

61 Pages Posted: 15 Jan 2015 Last revised: 14 Jan 2019

See all articles by Tarun Chordia

Tarun Chordia

Emory University - Department of Finance

Amit Goyal

University of Lausanne; Swiss Finance Institute

Jay A. Shanken

Emory University - Goizueta Business School; National Bureau of Economic Research (NBER)

Date Written: November 2017

Abstract

We develop a methodology for bias-corrected return-premium estimation from cross-sectional regressions of individual stock returns on betas and firm characteristics. Over the period 1963-2014, there is some evidence of a negative premium on the size factor and positive beta premiums for the profitability and investment factors as well as the market factor (though not for the CAPM). There is no pricing evidence for the book-to-market and momentum factors with all characteristics included. Characteristics consistently explain a much larger proportion of variation in estimated expected returns than factor loadings, even with time-varying return premia

Keywords: Asset Pricing, Individual Stocks, Factor Loadings, Characteristics, Errors-in-Variables

JEL Classification: G10, G12

Suggested Citation

Chordia, Tarun and Goyal, Amit and Shanken, Jay A., Cross-Sectional Asset Pricing with Individual Stocks: Betas versus Characteristics (November 2017). Available at SSRN: https://ssrn.com/abstract=2549578 or http://dx.doi.org/10.2139/ssrn.2549578

Tarun Chordia

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Amit Goyal

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Jay A. Shanken (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States
404-727-4772 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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