Calendar Cycles, Infrequent Decisions and the Cross-Section of Stock Returns

Management Science, Forthcoming

AFA 2008 New Orleans Meetings Paper

43 Pages Posted: 21 Mar 2007 Last revised: 10 Oct 2011

See all articles by Ravi Jagannathan

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

Srikant Marakani

City University of Hong Kong (CityUHK)

Hitoshi Takehara

Graduate School of Business and Finance

Yong Wang

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: November 8, 2007

Abstract

We show that when investors review their consumption and investment plans infrequently at different points in time with interim information flow the standard consumption-based capital asset pricing model (CCAPM) will continue to hold only at those points in time when all investors review their plans. Stylized facts suggest that the end of the tax year is a candidate for one such points in time. Therefore we should expect more support for the CCAPM during the period surrounding the end of the tax year, i.e., the fourth and first quarters in Japan where the tax year ends in December, and the first and second quarters in the United Kingdom where the tax year ends in April. Our empirical findings are consistent with these expectations.

Keywords: CCAPM, Japanese stock market, UK stock market, cross-section of stock returns, infrequent decisions, deterministic cycles, calendar cycles

Suggested Citation

Jagannathan, Ravi and Marakani, Srikant and Takehara, Hitoshi and Wang, Yong, Calendar Cycles, Infrequent Decisions and the Cross-Section of Stock Returns (November 8, 2007). Management Science, Forthcoming; AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=972739

Ravi Jagannathan

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

Srikant Marakani

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Hitoshi Takehara

Graduate School of Business and Finance ( email )

1-6-1 Nishiwaseda, Shinjyuku-ku
Tokyo, Tokyo 169-8050
Japan
+81-35286-8419 (Phone)

Yong Wang (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom, Kowloon
Hong Kong
Hong Kong

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