Can An ”Estimation Factor” Help Explain Cross-Sectional Returns?
AbstractWe show in a theoretical model that the expected excess return on any asset depends on its covariance not only with the market portfolio, but also with changes in the representative agent’s estimate. In the empirical specification, this ”estimation factor” is based on realized growth in aggregate dividends and earnings. We test our model by using GMM and compare it to the Fama-French model. The results suggest that the estimation factor is priced. Moreover, the Hansen-Jagannathan distances show that the conditional and static versions of our derived model perform on a par with the corresponding versions of the Fama-French model.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2005:18.
Length: 32 pages
Date of creation: 24 Feb 2005
Date of revision:
Publication status: Published in Journal of Business, Finance and Accounting, 2009, pages 705-724.
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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/
More information through EDIRC
learning; incomplete information; equilibrium; factor pricing models;
Other versions of this item:
- Frederik Lundtofte, 2009. "Can An 'Estimation Factor' Help Explain Cross-Sectional Returns?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5-6), pages 705-724.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-27 (All new papers)
- NEP-CFN-2005-02-27 (Corporate Finance)
- NEP-FIN-2005-02-27 (Finance)
- NEP-RMG-2005-02-27 (Risk Management)
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