This paper develops and estimates a heteroskedastic variant of Campbell’s (1993) ICAPM, in which risk factors include a stock market return and variables forecasting stock market returns or variance. Our main innovation is the use of a new set of predictive variables, which not only have superior forecasting abilities for stock returns and variance, but also are theoretically motivated. In contrast with the early authors, we find that Campbell’s ICAPM performs significantly better than the CAPM. That is, the additional factors account for a substantial portion of the two CAPM-related anomalies, namely, the value premium and the momentum profit.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number
2002-013.
Length: Date of creation: 2005 Date of revision: Publication status: Published in Journal of Banking and Finance, July 2006, 30(7), pp. 2087-2107 Handle: RePEc:fip:fedlwp:2002-013
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 210000 papers.