Return Contributions of Factors and Characteristics in an Integrated Asset Pricing Approach

56 Pages Posted: 17 Oct 2017 Last revised: 31 Oct 2017

See all articles by Matthias Bank

Matthias Bank

University of Innsbruck

Franz Insam

University of Innsbruck

Date Written: October 31, 2017

Abstract

We extend the standard one-period expected utility model based on exponential preferences with additional preference variables for asset characteristics, which are able to capture cross-sectional return differences. Contrary to the literature we treat characteristics as indicator variables to indicate whether a stock exhibits a certain characteristic or not. These indicator variables can be interpreted as "coloured markers" of stock characteristics. We derive simple empirically testable relationships, from which we dissect portfolio excess returns into return contributions coming from the covariance with common factors (market excess return, HML, SMB) and characteristics. Especially we find the robust results that the characteristics distress and high volatility carry significant and large absolute return contributions. Moreover, the characteristic return contributions exhibit strong return seasonalities and changes over the sample period.

Keywords: Asset Pricing, Stock Characteristics, Seasonalities

JEL Classification: G12

Suggested Citation

Bank, Matthias and Insam, Franz, Return Contributions of Factors and Characteristics in an Integrated Asset Pricing Approach (October 31, 2017). Available at SSRN: https://ssrn.com/abstract=3054014 or http://dx.doi.org/10.2139/ssrn.3054014

Matthias Bank (Contact Author)

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Franz Insam

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
93
Abstract Views
715
rank
312,468
PlumX Metrics