Advanced Search
MyIDEAS: Login to save this paper or follow this series

Determinants of expected stock returns: Large sample evidence from the German market

Contents:

Author Info

  • Artmann, Sabine
  • Finter, Philipp
  • Kempf, Alexander
Registered author(s):

    Abstract

    This paper conducts a comprehensive asset pricing study based on a unique dataset for the German stock market. For the period 1963 to 2006 we show that two value characteristics (book-to-market equity, earnings-to-price) and momentum explain the cross-section of stock returns. Corresponding factor portfolios have significant premiums across various doublesorted characteristic-based test assets. In a horse race of competing asset pricing models the Fama-French 3-factor model does a poor job in explaining average stock returns, whereas the Carhart 4-factor model performs well. However, both models are inferior to a 4-factor model containing an earnings-to-price factor instead of a size factor. --

    Download Info

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Bibliographic Info

    Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 10-01.

    as in new window
    Length:
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:zbw:cfrwps:1001

    Contact details of provider:
    Postal: Albertus Magnus Platz, 50923 Köln
    Phone: 0221 / 470 5607
    Fax: 0221 / 470 5179
    Email:
    Web page: http://cfr-cologne.de/english/version06/html/home.php
    More information through EDIRC

    Related research

    Keywords: asset pricing; characteristics; risk factors; multifactor models; Germany;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    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.:
    as in new window
    1. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, American Finance Association, vol. 40(3), pages 793-805, July.
    2. Michael J. Brennan & Ashley W. Wang & Yihong Xia, 2004. "Estimation and Test of a Simple Model of Intertemporal Capital Asset Pricing," Journal of Finance, American Finance Association, American Finance Association, vol. 59(4), pages 1743-1776, 08.
    3. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 33(1), pages 3-56, February.
    4. Elsas, Ralf & El-Shaer, Mahmoud & Theissen, Erik, 2003. "Beta and returns revisited: Evidence from the German stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 13(1), pages 1-18, February.
    5. Gregory Connor & Sanjay Sehgal, 2001. "Tests of the Fama and French model in India," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 25057, London School of Economics and Political Science, LSE Library.
    6. Lewellen, Jonathan & Nagel, Stefan & Shanken, Jay, 2010. "A skeptical appraisal of asset pricing tests," Journal of Financial Economics, Elsevier, Elsevier, vol. 96(2), pages 175-194, May.
    7. Basu, S, 1977. "Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis," Journal of Finance, American Finance Association, American Finance Association, vol. 32(3), pages 663-82, June.
    8. Lo, Andrew W. (Andrew Wen-Chuan) & MacKinlay, Archie Craig, 1955-, 1989. "Data-snooping biases in tests of financial asset pricing models," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 3020-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    9. Gabriel Hawawini & Donald B. Keim, . "The Cross Section of Common Stock Returns: A Review of the Evidence and Some New Findings," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 8-99, Wharton School Rodney L. White Center for Financial Research.
    10. K. Geert Rouwenhorst, 1998. "International Momentum Strategies," Journal of Finance, American Finance Association, American Finance Association, vol. 53(1), pages 267-284, 02.
    11. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, Elsevier, vol. 9(1), pages 3-18, March.
    12. John M. Griffin, 2002. "Are the Fama and French Factors Global or Country Specific?," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(3), pages 783-803.
    13. Jun Cai, 1997. "Glamour and Value Strategies on the Tokyo Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, Wiley Blackwell, vol. 24(9&10), pages 1291-1310.
    14. Andreas Schrimpf & Michael Schröder & Richard Stehle, 2007. "Cross-sectional Tests of Conditional Asset Pricing Models: Evidence from the German Stock Market," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 13(5), pages 880-907.
    15. John M. Griffin & Xiuqing Ji & J. Spencer Martin, 2003. "Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole," Journal of Finance, American Finance Association, American Finance Association, vol. 58(6), pages 2515-2547, December.
    16. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, Econometric Society, vol. 57(5), pages 1121-52, September.
    17. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 57-82, March.
    18. Breig, Christoph & Elsas, Ralf, 2009. "Default Risk and Equity Returns: A Comparison of the Bank-Based German and the U.S. Financial System," Discussion Papers in Business Administration, University of Munich, Munich School of Management 10978, University of Munich, Munich School of Management.
    19. Jegadeesh, Narasimhan, 1990. " Evidence of Predictable Behavior of Security Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 45(3), pages 881-98, July.
    20. Weimin Lui & Norman Strong & Xinzhong Xu, 1999. "The Profitability of Momentum Investing," Journal of Business Finance & Accounting, Wiley Blackwell, Wiley Blackwell, vol. 26(9-10), pages 1043-1091.
    21. Viale, Ariel M. & Kolari, James W. & Fraser, Donald R., 2009. "Common risk factors in bank stocks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(3), pages 464-472, March.
    22. K. Rouwenhorst, 1998. "Local Return Factors and Turnover in Emerging Stock Markets," Yale School of Management Working Papers, Yale School of Management ysm97, Yale School of Management, revised 01 Mar 2001.
    23. Ralitsa Petkova, 2006. "Do the Fama-French Factors Proxy for Innovations in Predictive Variables?," Journal of Finance, American Finance Association, American Finance Association, vol. 61(2), pages 581-612, 04.
    24. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 47(2), pages 427-65, June.
    25. Sugato Chakravarty & Huseyin Gulen & Stewart Mayhew, 2004. "Informed Trading in Stock and Option Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 59(3), pages 1235-1258, 06.
    26. Bhandari, Laxmi Chand, 1988. " Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence," Journal of Finance, American Finance Association, American Finance Association, vol. 43(2), pages 507-28, June.
    27. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, American Finance Association, vol. 19(3), pages 425-442, 09.
    28. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 55-84, March.
    29. Eugene F. Fama & Kenneth R. French, 2008. "Dissecting Anomalies," Journal of Finance, American Finance Association, American Finance Association, vol. 63(4), pages 1653-1678, 08.
    30. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, American Finance Association, vol. 48(1), pages 65-91, March.
    31. Haugen, Robert A. & Baker, Nardin L., 1996. "Commonality in the determinants of expected stock returns," Journal of Financial Economics, Elsevier, Elsevier, vol. 41(3), pages 401-439, July.
    32. Ball, Ray, 1978. "Anomalies in relationships between securities' yields and yield-surrogates," Journal of Financial Economics, Elsevier, Elsevier, vol. 6(2-3), pages 103-126.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Artmann, Sabine & Finter, Philipp & Kempf, Alexander & Koch, Stefan & Theissen, Erik, 2010. "The cross-Section of German stock returns: New data and new evidence," CFR Working Papers 10-12, University of Cologne, Centre for Financial Research (CFR).

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:zbw:cfrwps:1001. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.