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Cashflow news, the value premium and an asset pricing view on European stock market integration

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  • Thomas Nitschka

Abstract

The decomposition of national CAPM market betas of European countries’ value and growth portfolio returns into cashflow and discount rate news driven components reveals that i) high average returns on value portfolios are associated with disproportionately high sensitivity to national cashflow news which corroborates recent evidence for the U.S. and ii) two-beta variants of national CAPMs capture the cross-sectional dispersion in European stock returns. The latter finding is suggestive of relatively well integrated stock markets among the core European countries and reflects basic asset pricing theory. One (national) discount factor should price any (international) asset.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 339.

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Date of creation: Nov 2007
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Handle: RePEc:zur:iewwpx:339

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Keywords: Cashflow beta; discount rate beta; CAPM; value premium;

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Cited by:
  1. Victoria Atanasov, 2013. "The Size Effect in Value and Momentum Factors: Implications for the Cross-section of International Stock Returns," Tinbergen Institute Discussion Papers 13-180/IV/DSF66, Tinbergen Institute.
  2. Galsband, Victoria, 2012. "Downside risk of international stock returns," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2379-2388.

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