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CAPM Beta, Size, Book-to-Market, and Momentum in Realized Stock Returns

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Abstract

Measuring risk in the stock market context is one of the key challenges of modern finance. Despite the substantial significance of the topic to investors and market regulators, there is a controversy over what risk factors should be used to price assets or to determine the cost of capital. We empirically investigate the ability of several commonly proposed risk factors to predict Swedish stock returns. We consider the sensitivity of asset returns to the variation in market returns (beta), the market value of equity (size), the ratio of the market value of equity to the book value of equity, and short-term historical stock returns (momentum). We conclude that none of these factors is clearly significant for explaining stock returns on the Stockholm Stock Exchange, which casts doubt on their use as universal risk factors in various corporate governance contexts. It seems that the previously documented relationship is contingent on the data sample used and on the time period.

Suggested Citation

  • Jiri Novak & Dalibor Petr, 2010. "CAPM Beta, Size, Book-to-Market, and Momentum in Realized Stock Returns," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(5), pages 447-460, December.
  • Handle: RePEc:fau:fauart:v:60:y:2010:i:5:p:447-460
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    File URL: http://journal.fsv.cuni.cz/storage/1196_str_447_460-novak.pdf
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    Cited by:

    1. Senarathne Chamil W. & Long Wei, 2019. "Industry Competition and Common Stock Returns," Management Sciences. Nauki o Zarządzaniu, Sciendo, vol. 24(3), pages 24-35, September.
    2. Emine Ebru AKSOY & Erginbay UÐURLU, 2015. "How did the 2007-2008 Financial Crisis Influence Turkish Firms," Journal of Economics and Political Economy, KSP Journals, vol. 2(4), pages 494-506, December.
    3. Dragos Stefan Oprea, 2015. "The Interval Effect in Estimating Beta: Empirical Evidence from the Romanian Stock Market," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 7(2), pages 016-025, December.

    More about this item

    Keywords

    stock returns; asset pricing; risk; multifactor models; CAPM; size; book-to-market; momentum; Sweden;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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