Evidence on the Characteristics of Cross Sectional Variation in Stock Returns

CRSP Working Paper Number #416

Posted: 8 Feb 1996

See all articles by Kent D. Daniel

Kent D. Daniel

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 25, 1996 (revision)

Abstract

Firm size and book-to-market ratios are both highly correlated with the returns of common stocks. Fama and French (1993) and others have argued that the association between these firm characteristics and their stock returns arises because size and book-to-market ratios are proxies for non-diversifiable factor risk. In contrast, the evidence in this paper indicates that the return premia on small capitalization and high book-to-market stocks does not arise because of the co-movements of these stocks with pervasive factors. It is the firm characteristics and not the covariance structure of returns that explain the cross-sectional variation in stock returns.

JEL Classification: G11, G12, G14

Suggested Citation

Daniel, Kent D. and Titman, Sheridan, Evidence on the Characteristics of Cross Sectional Variation in Stock Returns (January 25, 1996 (revision)). CRSP Working Paper Number #416. Available at SSRN: https://ssrn.com/abstract=7179

Kent D. Daniel (Contact Author)

Columbia Business School - Finance and Economics ( email )

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HOME PAGE: http://kentdaniel.net/

National Bureau of Economic Research (NBER)

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Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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