Expected Returns, Yield Spreads, and Asset Pricing Tests

48 Pages Posted: 12 Dec 2004  

Murillo Campello

Cornell University; National Bureau of Economic Research (NBER)

Long Chen

Cheung Kong Graduate School of Business

Lu Zhang

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: January 2006

Abstract

We use corporate bond yield spreads to gauge investors' return expectations. We then replace standard ex-post, averaged measures of return with our ex-ante return measures in asset pricing assets. We find that the market beta plays a significant role in the cross-section of returns when expectations are measured ex-ante. The expected size and value premia are significantly positive and countercyclical, but there is no evidence of ex-ante positive momentum profits.

Keywords: Expected Returns, Risk Factors, Systematic Risk, Yield Spreads

JEL Classification: G12, E44

Suggested Citation

Campello, Murillo and Chen, Long and Zhang, Lu, Expected Returns, Yield Spreads, and Asset Pricing Tests (January 2006). Simon School Working Paper No. FR 04-04; AFA 2005 Philadelphia Meetings. Available at SSRN: https://ssrn.com/abstract=491403 or http://dx.doi.org/10.2139/ssrn.491403

Murillo Campello

Cornell University ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Long Chen

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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