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Asset pricing and predictability of stock returns in the french market

  • Ellouz, Siwar
  • Bellalah, Mondher
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    This paper studies the predictability of returns in the French stock market. It provides an analysis of predictable components of monthly common stock returns. We study a single-beta conditional model and we show that stock market risk premium is variable over the time and is important for capturing predictable variations of stock returns. We find also that the expected excess returns on small and medium capitalization stocks are more sensitive to changes in the predetermined variables such as dividend yields, default spread and term spread, than expected excess returns on large capitalization stocks.

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    File URL: https://mpra.ub.uni-muenchen.de/4961/1/MPRA_paper_4961.pdf
    File Function: original version
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4961.

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    Date of creation: 07 Mar 2007
    Date of revision: 24 Sep 2007
    Handle: RePEc:pra:mprapa:4961
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    Web page: https://mpra.ub.uni-muenchen.de

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    1. Dybvig, Philip H & Ross, Stephen A, 1985. " Differential Information and Performance Measurement Using a Security Market Line," Journal of Finance, American Finance Association, vol. 40(2), pages 383-99, June.
    2. Robert J. Shiller & Pierre Perron, 1985. "Testing the Random Walk Hypothesis: Power versus Frequency of Observation," NBER Technical Working Papers 0045, National Bureau of Economic Research, Inc.
    3. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    4. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    5. Keim, Donald B. & Stambaugh, Robert F., 1986. "Predicting returns in the stock and bond markets," Journal of Financial Economics, Elsevier, vol. 17(2), pages 357-390, December.
    6. Jagannathan, Ravi & Wang, Zhenyu, 1996. " The Conditional CAPM and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 51(1), pages 3-53, March.
    7. Ferson, Wayne E. & Harvey, Campbell R., 1997. "Fundamental determinants of national equity market returns: A perspective on conditional asset pricing," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1625-1665, December.
    8. Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 25(1), pages 23-49, November.
    9. Wayne Ferson & Stephen Foerster & Donald Keim, . "Tests of Asset Pricing Models with Changing Expectations," Rodney L. White Center for Financial Research Working Papers 27-87, Wharton School Rodney L. White Center for Financial Research.
    10. Ferson, Wayne E & Korajczyk, Robert A, 1995. "Do Arbitrage Pricing Models Explain the Predictability of Stock Returns?," The Journal of Business, University of Chicago Press, vol. 68(3), pages 309-49, July.
    11. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
    12. Chan, Louis K. C. & Karceski, Jason & Lakonishok, Josef, 1998. "The Risk and Return from Factors," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(02), pages 159-188, June.
    13. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    14. Bekaert, Geert, 2001. "Editor's foreword to the special issue: "On the predictability of asset returns"," Journal of Empirical Finance, Elsevier, vol. 8(5), pages 451-457, December.
    15. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
    16. Balvers, Ronald J & Cosimano, Thomas F & McDonald, Bill, 1990. " Predicting Stock Returns in an Efficient Market," Journal of Finance, American Finance Association, vol. 45(4), pages 1109-28, September.
    17. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-64, December.
    18. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    19. Kothari, S. P. & Shanken, Jay, 1997. "Book-to-market, dividend yield, and expected market returns: A time-series analysis," Journal of Financial Economics, Elsevier, vol. 44(2), pages 169-203, May.
    20. Ferson, Wayne E & Harvey, Campbell R, 1991. "The Variation of Economic Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 385-415, April.
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