Expected Returns, Yield Spreads, and Asset Pricing Tests
41 Pages Posted: 13 Jun 2005 Last revised: 11 Dec 2022
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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
Date Written: May 2005
Abstract
We use yield spreads to construct ex-ante returns on corporate securities, and then use the ex-ante returns in asset pricing assets. Differently from the standard approach, our tests do not use ex-post average returns as a proxy for expected returns. We find that the market beta plays a much more important role in the cross-section of expected returns than previously reported. The expected value premium is significantly positive and countercyclical. We find no evidence of ex-ante positive momentum profits.
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