Corporate Activities and the Market Risk Premium

58 Pages Posted: 4 Feb 2017 Last revised: 28 May 2021

See all articles by Erik Lie

Erik Lie

University of Iowa - Henry B. Tippie College of Business

Bo Meng

University of Richmond

Yiming Qian

University of Connecticut

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Date Written: October 30, 2017

Abstract

While existing asset pricing studies focus on macroeconomic variables to predict stock market risk premium, we find that an aggregate index of corporate activities has substantially greater predictive power both in- and out-of sample, and yields much greater economic gain for a mean-variance investor. The predictive ability of the corporate index stems from its information content about future cash flows and expected corporate investments. Cross-sectionally, the corporate index performs particularly well for stocks with great information asymmetry.

Keywords: Predictability, Corporate Activities, Information Asymmetry, Economic Value

JEL Classification: G10, E44, G30, G11, G12, G15

Suggested Citation

Lie, Erik and Meng, Bo and Qian, Yiming and Zhou, Guofu, Corporate Activities and the Market Risk Premium (October 30, 2017). Available at SSRN: https://ssrn.com/abstract=2911120 or http://dx.doi.org/10.2139/ssrn.2911120

Erik Lie

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

Bo Meng

University of Richmond ( email )

102 UR Drive
Richmond, VA 23173
United States
(804) 289-8623 (Phone)

Yiming Qian

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

Guofu Zhou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

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