Common Risk Factors in Explaining Canadian Equity Returns
AbstractThis paper adopts the Fama and French (1993) methodology for determining the common risk factors in the returns of Canadian stocks. Our results suggest that the three stock market factors, the excess stock market returns, a size factor, and a book-to-market equity factor, explain most of the variation in Canadian equity returns over time. Unlike in the U.S. equity market, the addition of bond market variables provides little explanatory power in the Canadian equity market, suggesting that the underlying factors influencing stocks and bonds are more distinct in Canada. The stock and bond market factors are then used to estimate the required returns on a sample of Canadian utilities separated into telco, gas/electric and pipeline portfolios. The results presented in this paper suggest that the Fama and French model can make an important contribution to cost of capital determination in regulatory proceedings, especially when combined with estimates based upon alternative methodologies, to provide the regulator with additional insight in deciding the allowed return.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number berk-00-01.
Length: 29 pages
Date of creation: 11 Dec 2001
Date of revision:
Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283
Equity returns; Factor loadings;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-01-21 (All new papers)
- NEP-CFN-2001-02-21 (Corporate Finance)
- NEP-FIN-2001-02-21 (Finance)
- NEP-FMK-2000-12-19 (Financial Markets)
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.:
- Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
- Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
- Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Bhandari, Laxmi Chand, 1988. " Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence," Journal of Finance, American Finance Association, vol. 43(2), pages 507-28, June.
- Daniel, Kent & Titman, Sheridan, 1997.
" Evidence on the Characteristics of Cross Sectional Variation in Stock Returns,"
Journal of Finance,
American Finance Association, vol. 52(1), pages 1-33, March.
- Kent Daniel & Sheridan Titman, 1996. "Evidence on the Characteristics of Cross Sectional Variation in Stock Returns," NBER Working Papers 5604, National Bureau of Economic Research, Inc.
- Andreas Ziegler & Michael Schröder & Klaus Rennings, 2008.
"The Effect of Environmental and Social Performance on the Stock Performance of European Corporations,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 40(4), pages 609-609, August.
- Andreas Ziegler & Michael Schröder & Klaus Rennings, 2007. "The effect of environmental and social performance on the stock performance of european corporations," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(4), pages 661-680, August.
- Berkowitz, Michael K. & Qiu, Jiaping, 2003.
"Ownership, risk and performance of mutual fund management companies,"
Journal of Economics and Business,
Elsevier, vol. 55(2), pages 109-134.
- Michael K. Berkowitz & Jiaping Qiu, 2001. "Ownership, Risk and Performance of Mutual Fund Management Companies," Working Papers berk-01-01, University of Toronto, Department of Economics.
- Maher Kooli & Jean-François L'Her & Jean-Marc Suret, 2003. "Do IPOs Underperform in the Long-Run? New Evidence from the Canadian Stock Market," CIRANO Working Papers 2003s-16, CIRANO.
- Stehle, Richard & Schulz, Anja & Schröder, Michael & Eberts, Elke & Ziegler, Andreas, 2003. "Multifaktormodelle zur Erklärung deutscher Aktienrenditen: eine empirische Analyse," ZEW Discussion Papers 03-45, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Oberndorfer, Ulrich & Ziegler, Andreas, 2006. "Environmentally oriented energy policy and stock returns: an empirical analysis," ZEW Discussion Papers 06-79, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Urs von Arx & Andreas Ziegler, 2008. "The Effect of CSR on Stock Performance: New Evidence for the USA and Europe," CER-ETH Economics working paper series 08/85, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Rob Bauer & Jeroen Derwall & RogÃ©r Otten, 2007. "The Ethical Mutual Fund Performance Debate: New Evidence from Canada," Journal of Business Ethics, Springer, vol. 70(2), pages 111-124, January.
- Janick Christian Mollet & Andreas Ziegler, 2012. "Is Socially Responsible Investing Really Beneficial? New Empirical Evidence for the US and European Stock Markets," MAGKS Papers on Economics 201228, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- Ziegler, Andreas & Busch, Timo & Hoffmann, Volker H., 2011. "Disclosed corporate responses to climate change and stock performance: An international empirical analysis," Energy Economics, Elsevier, vol. 33(6), pages 1283-1294.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).
If references are entirely missing, you can add them using this form.