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Where Do Betas Come From? Asset Price Dynamics and the

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  • Campbell, John Y
  • Mei, Jianping

Abstract

In this article we break assets' betas with common factors into components attributable to news about future cash flows, real interest rates, and excess returns. To achieve this decomposition, we use a vector autoregressive time-series model and an approximate log-linear present value relation. The betas of industry and size portfolios with the market are largely attributed to changing expected returns. Betas with inflation and industrial production reflect opposing cash flow and expected return effects. We also show how asset pricing theory restricts the expected excess return components of betas. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 6 (1993)
Issue (Month): 3 ()
Pages: 567-92

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Handle: RePEc:oup:rfinst:v:6:y:1993:i:3:p:567-92

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Cited by:
  1. Willem Thorbecke, 1998. "On Stock Market Returns and Monetary Policy," Macroeconomics, EconWPA 9812009, EconWPA.
  2. Polk, Christopher & Vuolteenaho, Tuomo & Campbell, John Y., 2010. "Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns," Scholarly Articles 9887622, Harvard University Department of Economics.
  3. Owen Lamont, . "Investment Plans and Stock Returns."," CRSP working papers 488, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  4. N. Valckx, 2001. "Stock and Bond Market Sensitivities to Monetary Variables," WO Research Memoranda (discontinued), Netherlands Central Bank, Research Department 680, Netherlands Central Bank, Research Department.
  5. Peter Hecht & Tuomo Vuolteenaho, 2005. "Explaining Returns with Cash-Flow Proxies," NBER Working Papers 11169, National Bureau of Economic Research, Inc.
  6. John Y. Campbell & Tuomo Vuolteenaho, 2003. "Bad Beta, Good Beta," NBER Working Papers 9509, National Bureau of Economic Research, Inc.
  7. Willem Thorebeck, 1998. "The Distributional Effects of Disinflationary Monetary Policy," Macroeconomics, EconWPA 9812002, EconWPA.

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