IDEAS home Printed from https://ideas.repec.org/p/zur/iewwpx/339.html
   My bibliography  Save this paper

Cashflow news, the value premium and an asset pricing view on European stock market integration

Author

Listed:
  • Thomas Nitschka

Abstract

The decomposition of national CAPM market betas of European countries� value and growth portfolio returns into cashflow and discount rate news driven components reveals that i) high average returns on value portfolios are associated with disproportionately high sensitivity to national cashflow news which corroborates recent evidence for the U.S. and ii) two-beta variants of national CAPMs capture the cross-sectional dispersion in European stock returns. The latter finding is suggestive of relatively well integrated stock markets among the core European countries and reflects basic asset pricing theory. One (national) discount factor should price any (international) asset.

Suggested Citation

  • Thomas Nitschka, 2007. "Cashflow news, the value premium and an asset pricing view on European stock market integration," IEW - Working Papers 339, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:339
    as

    Download full text from publisher

    File URL: http://www.econ.uzh.ch/static/wp_iew/iewwp339.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Campbell, John Y & Hamao, Yasushi, 1992. " Predictable Stock Returns in the United States and Japan: A Study of Long-Term Capital Market Integration," Journal of Finance, American Finance Association, vol. 47(1), pages 43-69, March.
    2. 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 1739-1764, December.
    3. Eugene F. Fama & Kenneth R. French, 1998. "Value versus Growth: The International Evidence," Journal of Finance, American Finance Association, vol. 53(6), pages 1975-1999, December.
    4. Campbell, John Y & Shiller, Robert J, 1988. " Stock Prices, Earnings, and Expected Dividends," Journal of Finance, American Finance Association, vol. 43(3), pages 661-676, July.
    5. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
    6. Solnik, B H, 1974. "The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure," Journal of Finance, American Finance Association, vol. 29(2), pages 365-378, May.
    7. Hamburg, Britta & Hoffmann, Mathias & Keller, Joachim, 2005. "Consumption, wealth and business cycles: why is Germany different?," Discussion Paper Series 1: Economic Studies 2005,16, Deutsche Bundesbank.
    8. Liu, Naiping & Zhang, Lu, 2008. "Is the value spread a useful predictor of returns?," Journal of Financial Markets, Elsevier, vol. 11(3), pages 199-227, August.
    9. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April.
    10. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 195-228.
    11. Campbell, John Y., 1987. "Stock returns and the term structure," Journal of Financial Economics, Elsevier, vol. 18(2), pages 373-399, June.
    12. Dumas, Bernard & Solnik, Bruno, 1995. " The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 50(2), pages 445-479, June.
    13. Martin Lettau, 2001. "Consumption, Aggregate Wealth, and Expected Stock Returns," Journal of Finance, American Finance Association, vol. 56(3), pages 815-849, June.
    14. John Y. Campbell & Tuomo Vuolteenaho, 2004. "Bad Beta, Good Beta," American Economic Review, American Economic Association, vol. 94(5), pages 1249-1275, December.
    15. Hui Guo, 2006. "The Risk-Return Relation in International Stock Markets," The Financial Review, Eastern Finance Association, vol. 41(4), pages 565-587, November.
    16. Ioannidis, C. & Peel, D.A. & Matthews, K.P.G., 2006. "Expected stock returns, aggregate consumption and wealth: Some further empirical evidence," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 439-445, June.
    17. Thomas Nitschka, 2010. "International Evidence for Return Predictability and the Implications for Long-Run Covariation of the G7 Stock Markets," German Economic Review, Verein für Socialpolitik, vol. 11, pages 527-544, November.
    18. Lance A. Fisher & Graham M. Voss, 2004. "Consumption, Wealth and Expected Stock Returns in Australia," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 359-372, December.
    19. Hui Guo, 2006. "On the risk-return relation in international stock markets," Working Papers 2003-012, Federal Reserve Bank of St. Louis.
    20. Lettau, Martin & Ludvigson, Sydney C., 2005. "Expected returns and expected dividend growth," Journal of Financial Economics, Elsevier, vol. 76(3), pages 583-626, June.
    21. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-887, September.
    22. Alvin Tan & Graham Voss, 2003. "Consumption and Wealth in Australia," The Economic Record, The Economic Society of Australia, vol. 79(244), pages 39-56, March.
    23. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 357-386.
    24. 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.
    25. Mathias Hoffmann, 2005. "Proprietary Income, Entrepreneurial Risk and the Predictability of U.S. Stock Returns," Computing in Economics and Finance 2005 229, Society for Computational Economics.
    26. Martin Lettau & Sydney Ludvigson, 2001. "Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia Are Time-Varying," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1238-1287, December.
    27. 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.
    28. 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.
    29. Emilio Fernandez-Corugedo & Simon Price & Andrew Blake, 2003. "The dynamics of consumers' expenditure: the UK consumption ECM redux," Bank of England working papers 204, Bank of England.
    30. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    31. Harvey, Campbell R, 1991. " The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-157, March.
    32. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    33. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," The Journal of Business, University of Chicago Press, vol. 45(3), pages 444-455, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thomas Nitschka, 2014. "Have investors been looking for exposure to specific countries since the global financial crisis? - Insights from the Swiss franc bond market," Working Papers 2014-13, Swiss National Bank.
    2. repec:bla:intfin:v:19:y:2016:i:3:p:292-310 is not listed on IDEAS
    3. David Haab & Thomas Nitschka, 2017. "Predicting returns on asset markets of a small, open economy and the influence of global risks," Working Papers 2017-14, Swiss National Bank.
    4. Thomas Nitschka, 2016. "Is There a Too-Big-to-Fail Discount in Excess Returns on German Banks’ Stocks?," International Finance, Wiley Blackwell, vol. 19(3), pages 292-310, December.
    5. Galsband, Victoria, 2012. "Downside risk of international stock returns," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2379-2388.
    6. Victoria Atanasov & Thomas Nitschka, 2013. "The Size Effect in Value and Momentum Factors: Implications for the Cross-section of International Stock Returns," Tinbergen Institute Discussion Papers 13-180/IV/DSF66, Tinbergen Institute.
    7. Yamani, Ehab A. & Swanson, Peggy E., 2014. "Financial crises and the global value premium: Revisiting Fama and French," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 115-136.

    More about this item

    Keywords

    Cashflow beta; discount rate beta; CAPM; value premium;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:zur:iewwpx:339. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser). General contact details of provider: http://edirc.repec.org/data/seizhch.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.