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Expected returns and economic risk in Canadian financial markets

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  • B. Carmichael
  • L. Samson
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    Abstract

    This article estimates a linear factor model that links asset return fluctuations to: time-varying expected returns, to economic factors innovations and to a residual idiosyncratic risk. It considers bond returns together with returns on a number of portfolio of assets, grouped by sectors, traded on the Toronto Stock Exchange. The first part of the article identifies the number of latent variables necessary to explain the behaviour of these asset returns and concludes that two latent variables are needed. The second stage uses proxies for the underlying economic factors (state variables) and exploits the restrictions of the model to estimate conditional betas.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100110111268
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 13 (2003)
    Issue (Month): 3 ()
    Pages: 177-189

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    Handle: RePEc:taf:apfiec:v:13:y:2003:i:3:p:177-189

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    Web page: http://www.tandfonline.com/RAFE20

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    Cited by:
    1. Leonardo Becchetti & Stefano Castriota & Melania Michetti, 2013. "The effect of fair trade affiliation on child schooling: evidence from a sample of Chilean honey producers," Applied Economics, Taylor & Francis Journals, vol. 45(25), pages 3552-3563, September.

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