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Expected returns, yield spreads, and asset pricing tests

Listed author(s):
  • Lu Zhang
  • Murillo Campello
  • Long Chen

We use yield spreads to construct ex-ante returns on corporate securities, and then use the ex-ante returns in asset pricing assets. Differently from the standard approach, our tests do not use ex-post average returns as a proxy for expected returns. We find that the market beta plays a much more important role in the cross-section of expected returns than previously reported. The expected value premium is significantly positive and countercyclical. We find no evidence of ex-ante positive momentum profits.

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Article provided by Board of Governors of the Federal Reserve System (U.S.) in its journal Proceedings.

Volume (Year): (2005)
Issue (Month): ()
Pages:

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Handle: RePEc:fip:fedgpr:y:2005:x:19
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