Empirical Risk Factors in Realized Stock Returns
AbstractMeasuring risk in the stock market context is one of the key challenges of modern finance. Despite of the substantial significance of the topic to investors and market regulators, there is a controversy over what risk factors should be used to price the assets or to determine the cost of capital. We empirically investigate the ability of several commonly proposed risk factors to predict Swedish stock returns. We consider the sensitivity of an asset returns to the variation in market returns, the market value of equity, the ratio of market value of equity to book value of equity and the short-term historical stock returns. We conclude that none of these factors is clearly significant for explaining stock returns at the Stockholm Stock Exchange, which casts doubt on their use as universal risk factors in various corporate governance contexts. It seems that the previously documented relationship is contingent on the data sample used and on the time period.
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Bibliographic InfoPaper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2009/29.
Length: 26 pages
Date of creation: Dec 2009
Date of revision: Dec 2009
stock returns; asset pricing; risk; multifactor models; CAPM; size; book-to-market; momentum; Sweden;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-10 (All new papers)
- NEP-CFN-2010-01-10 (Corporate Finance)
- NEP-FMK-2010-01-10 (Financial Markets)
- NEP-RMG-2010-01-10 (Risk Management)
You can help add them by filling out this form.
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