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Equity Risk Factors for the Long and Short Run: Pricing and Performance at Different Frequencies

Author

Listed:
  • Terri van der Zwan

    (Erasmus University Rotterdam)

  • Erik Hennink

    (Ortec Finance)

  • Patrick Tuijp

    (Ortec Finance)

Abstract

We find that the outperformance for Fama-French factors compared to macroeconomic factors in terms of fitting the cross-section of expected returns disappears when accounting for horizon effects. In addition, we obtain novel empirical relations between macroeconomic factors and Fama-French factors at longer horizons. To obtain our results, we introduce a general linear multifactor asset pricing methodology that integrates systematic risk measured at different frequencies into a single pricing equation. Our setup allows for a setting where investors with different investment horizons may experience different levels of systematic risk, which could arise from delayed stock price reaction to systematic factor news.

Suggested Citation

  • Terri van der Zwan & Erik Hennink & Patrick Tuijp, 2021. "Equity Risk Factors for the Long and Short Run: Pricing and Performance at Different Frequencies," Tinbergen Institute Discussion Papers 21-062/III, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20210000
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Cross-Section of Stock Returns; Factors; Frequency Decomposition; Horizon Effects; Investment Horizon;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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