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Can the Risk Factors Explain the Cross-Section of Average Stock Returns in the Long Run?

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 uses the Fama-French three factor model with momentum factor to explain the cross-sectional variation of stock returns over various time scales using a new approach. The new approach is based on a wavelet multiscaling method that decomposes a given time series on a scale-by-scale basis. The empirical results provide that market, proxied by excess market return, plays an important role in explaining stock returns over all time scales. However, SMB and HML can also play a role over all time scales, depending on the time scale. This argument is applied to the momentum factor, denoted as MOM.

Suggested Citation

  • Francis In & Sangbae Kim, 2012. "Can the Risk Factors Explain the Cross-Section of Average Stock Returns in the Long Run?," World Scientific Book Chapters, in: An Introduction to Wavelet Theory in Finance A Wavelet Multiscale Approach, chapter 7, pages 125-146, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814397841_0007
    as

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