IDEAS home Printed from https://ideas.repec.org/h/wsi/wschap/9789814397841_0006.html
   My bibliography  Save this book chapter

On the Relationship Between Stock Returns and Risk Factors: New Evidence From Wavelet Analysis

In: An Introduction to Wavelet Theory in Finance A Wavelet Multiscale Approach

Author

Listed:
  • Francis In

    (Monash University, Australia)

  • Sangbae Kim

    (Kyungpook National University, Korea)

Abstract

This chapter adopts a new approach to examine the Fama–French three-factor model, which is commonly used to explain the cross-sectional variation in average stock returns over various times. The new approach is based on the wavelet multiscaling method that decomposes a given time series on a scaleby-scale basis. The empirical results reveal that if the mispricing is correct, it is expected that the loadings on the HML will be significant in the short scales, while insignificant in the long scales. It is found that all loading on the HML is significant regardless of time scales and portfolios. It is also found that the excess market return and HML combine to capture the cross-sectional variation in the six size-BM portfolio returns, and that SMB is effective in explaining the cross-section, except for large stocks.

Suggested Citation

  • Francis In & Sangbae Kim, 2012. "On the Relationship Between Stock Returns and Risk Factors: New Evidence From Wavelet Analysis," World Scientific Book Chapters, in: An Introduction to Wavelet Theory in Finance A Wavelet Multiscale Approach, chapter 6, pages 105-123, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814397841_0006
    as

    Download full text from publisher

    File URL: https://www.worldscientific.com/doi/pdf/10.1142/9789814397841_0006
    Download Restriction: Ebook Access is available upon purchase.
    File URL: https://www.worldscientific.com/doi/abs/10.1142/9789814397841_0006
    Download Restriction: Ebook Access is available upon purchase.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:wschap:9789814397841_0006. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscientific.com/page/worldscibooks .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.