Expected Returns, Yield Spreads, and Asset Pricing Tests
52 Pages Posted: 7 Nov 2007
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Expected Returns, Yield Spreads, and Asset Pricing Tests
Expected Returns, Yield Spreads, and Asset Pricing Tests
Expected Returns, Yield Spreads, and Asset Pricing Tests
Expected Returns, Yield Spreads, and Asset Pricing Tests
Abstract
We construct firm-specific measures of expected equity returns using corporate bond yields, and replace standard ex-post average returns with our expected-return measures in asset pricing tests. We find that the market beta is significantly priced in the cross-section of expected returns. The expected size and value premia are positive and countercyclical, but there is no evidence of positive expected momentum profits.
Keywords: Expected returns, risk factors, systematic risk, yield spreads
JEL Classification: G12, E44
Suggested Citation: Suggested Citation
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