A New Look at Expected Stock Returns and Volatility
Critical Finance Review, Forthcoming
Posted: 26 Nov 2020 Last revised: 6 Jan 2021
Date Written: October 7, 2020
Abstract
We replicate French, Schwert, and Stambaugh (1987) (FSS) with up-to-date data and new tools from the modern toolbox of econometric methods. As we proceed, we highlight the main technical details and econometric methods from the original study and, when necessary, update them. While our main goal is to replicate FSS as carefully as possible, we also aim to help new researchers quickly gain an in-depth understanding of the major features of the original study, and to demonstrate why FSS is fundamental to the asset pricing literature. We finish by text mining the titles and abstracts of over one thousand citing studies for information on why other studies cite FSS and which parts of FSS receive the most attention. After careful replication, we confirm that the main results in FSS hold and continue to hold through 2019.
Keywords: Volatility, Expected returns
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation