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Expected returns, yield spreads, and asset pricing tests

Author

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  • Murillo Campello
  • Long Chen
  • Lu Zhang

Abstract

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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Suggested Citation

  • Murillo Campello & Long Chen & Lu Zhang, 2005. "Expected returns, yield spreads, and asset pricing tests," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgpr:y:2005:x:19
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    File URL: http://www.federalreserve.gov/events/conferences/rs20050721/program.htm
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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