The Conditional CAPM and the Cross-Section of Expected Returns

J. OF FINANCE, Vol. 51 No. 1, March 1996

Posted: 5 Jul 1998

See all articles by Zhenyu Wang

Zhenyu Wang

University of Texas at Austin - Department of Finance

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Abstract

Most empirical studies of the static CAPM assume that betas remain constant over time and that the return on the value-weighted portfolio of all stocks is a proxy for the return on aggregate wealth. The general consensus is that the static CAPM is unable to explain satisfactorily the cross-section of average returns on stocks. We assume that the CAPM holds in a conditional sense, i.e., betas and the market risk premium vary over time. We include the return on human capital when measuring the return on aggregate wealth. Our specification performs well in explaining the cross-section of average returns.

JEL Classification: G1

Suggested Citation

Wang, Zhenyu and Jagannathan, Ravi, The Conditional CAPM and the Cross-Section of Expected Returns. J. OF FINANCE, Vol. 51 No. 1, March 1996. Available at SSRN: https://ssrn.com/abstract=7330

Zhenyu Wang

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

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5781 (Phone)

HOME PAGE: http://www.mccombs.utexas.edu/faculty/zhenyu.wang/

Ravi Jagannathan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
429 Andersen Hall
Evanston, IL 60208
United States
847-491-8338 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

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