Expected Returns, Yield Spreads, and Asset Pricing Tests
Cornell University; National Bureau of Economic Research (NBER)
Cheung Kong Graduate School of Business
Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)
NBER Working Paper No. w11323
We use yield spreads to construct ex-ante returns on corporate securities, and then use the ex-ante returns in asset pricing assets. Differently from the standard approach, our tests do not use ex-post average returns as a proxy for expected returns. We find that the market beta plays a much more important role in the cross-section of expected returns than previously reported. The expected value premium is significantly positive and countercyclical. We find no evidence of ex-ante positive momentum profits.
Number of Pages in PDF File: 41
Date posted: June 13, 2005