This paper breaks assets' betas with common factors into components attributable to news about future cash flows, real interest rates, and excess returns. To achieve this decomposition the paper uses 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. The paper also shows how asset pricing theory restricts the expected excess return components of betas.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4329.
Length: Date of creation: Apr 1993 Date of revision: Handle: RePEc:nbr:nberwo:4329
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Find related papers by JEL classification: G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
References listed on IDEAS 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.:
David M. Cutler & James M. Poterba & Lawrence H. Summers, 1989.
"What Moves Stock Prices?,"
NBER Working Papers
2538, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
David H. Cutler & James M. Poterba & Lawrence H. Summers, 1988.
"What Moves Stock Prices?,"
Working papers
487, Massachusetts Institute of Technology (MIT), Department of Economics.
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.)
John Y. Campbell & Tuomo Vuolteenaho, 2004.
"Bad Beta, Good Beta,"
American Economic Review,
American Economic Association, vol. 94(5), pages 1249-1275, December.
[Downloadable!]
Other versions:
John Y. Campbell & Tuomo Vuolteenaho, 2003.
"Bad Beta, Good Beta,"
NBER Working Papers
9509, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)