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Conditioning Variables and the Cross Section of Stock Returns

  • Wayne E. Ferson

    (University of Washington and National Bureau of Economic Research (NBER),)

  • Campbell R. Harvey

    (Duke University and NBER)

Previous studies identify predetermined variables that predict stock and bond returns through time. This paper shows that loadings on the same variables provide significant cross-sectional explanatory power for stock portfolio returns. The loadings are significant given the three factors advocated by Fama and French (1993) and the four factors of Elton, Gruber, and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The results carry implications for risk analysis, performance measurement, cost-of-capital calculations, and other applications. Copyright The American Finance Association 1999.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 54 (1999)
Issue (Month): 4 (08)
Pages: 1325-1360

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Handle: RePEc:bla:jfinan:v:54:y:1999:i:4:p:1325-1360
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