Yield Spreads as Alternative Risk Factors for Size and Book-to-Market
This paper investigates whether the size and book-to-market factors of Fama and French (1993) proxy for the risks associated with business cycle fluctuations. We find that changes in default spread (Δ def ) and changes in term spread (Δ term ) capture the systematic differences in average returns along the size and book-to-market dimensions in the way that the Fama-French factors do: small stock portfolios have higher loadings on Δ def than large stock portfolios, while high book-to-market portfolios have higher loadings on Δ term than low book-to-market portfolios. Furthermore, in the presence of Δ def and Δ term , the Fama-French factors are superfluous in explaining the size and book-to-market effects. The results suggest that the size and value premiums are compensation for higher exposure to the risks related to changing credit market conditions and interest rates proxied by Δ def and Δ term .
Volume (Year): 41 (2006)
Issue (Month): 02 (June)
|Contact details of provider:|| Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK|
Web page: http://journals.cambridge.org/jid_JFQ
When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:41:y:2006:i:02:p:245-269_00. 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: (Keith Waters)
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.