Conditioning Variables and the Cross Section of Stock Returns

Previous studies identify predetermined variables that predict stock and bond returns through time. This paper shows that loadings on the same variables provide significant cross-sectional explanatory power for stock portfolio returns. The loadings are significant given the three factors advocated by Fama and French (1993) and the four factors of Elton, Gruber, and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The results carry implications for risk analysis, performance measurement, cost-of-capital calculations, and other applications.     

Analyst Forecasts and the Cross Section of European Stock Returns

We examine revisions to earnings forecasts by equity analysts and their role in predicting stock returns. We provide evidence that European stocks with net upward revised forecasts earn higher future returns than otherwise similar stocks. This effect is not concentrated in small stocks, stocks with low analyst coverage, or stocks with low book‐to‐market ratios. We find differences in the return continuation patterns of stocks with upward versus downward revisions, namely, bad news travels quickly, but good news travels slowly. This result is consistent with investors' attaching greater significance to poor earnings forecasts, but adopting a wait‐and‐see approach to good news.     

Real Options Models of the Firm,Capacity Overhang,and the Cross Section of Stock Returns

We use a stochastic frontier model to obtain a stock‐level estimate of the difference between a firm's installed production capacity and its optimal capacity. We show that this “capacity overhang” estimate relates significantly negatively to the cross section of stock returns, even when controlling for popular pricing factors. The negative relation persists among small and large stocks, stocks with more or less reversible investments, and in good and bad economic states. Capacity overhang helps explain momentum and profitability anomalies, but not value and investment anomalies. Our evidence supports real options models of the firm featuring valuable divestment options.     

Forecast Dispersion and the Cross Section of Expected Returns

Recent work by Diether, Malloy, and Scherbina (2002) has established a negative relationship between stock returns and the dispersion of analysts' earnings forecasts. I offer a simple explanation for this phenomenon based on the interpretation of dispersion as a proxy for unpriced information risk arising when asset values are unobservable. The relationship then follows from a general options‐pricing result: For a levered firm, expected returns should always decrease with the level of idiosyncratic asset risk. This story is formalized with a straightforward model. Reasonable parameter values produce large effects, and the theory's main empirical prediction is supported in cross‐sectional tests.     

Idiosyncratic Consumption Risk and the Cross Section of Asset Returns

This paper investigates the importance of idiosyncratic consumption risk for the cross‐sectional variation in asset returns. We find that besides the rate of aggregate consumption growth, the cross‐sectional variance of consumption growth is also a priced factor. This suggests that consumers are not fully insured against idiosyncratic consumption risk, and that asset returns reflect their attempts to reduce their exposure to this risk. The resulting two‐factor consumption‐based asset pricing model significantly outperforms the CAPM, and its performance compares favorably with that of the Fama–French three‐factor model.     

Consumption, Dividends, and the Cross Section of Equity Returns

We show that aggregate consumption risks embodied in cash flows can account for the puzzling differences in risk premia across book‐to‐market, momentum, and size‐sorted portfolios. The dynamics of aggregate consumption and cash flow growth rates, modeled as a vector autoregression, are used to measure the consumption beta of discounted cash flows. Differences in these cash flow betas account for more than 60% of the cross‐sectional variation in risk premia. The market price for risk in cash flows is highly significant. We argue that cash flow risk is important for interpreting differences in risk compensation across assets.     

Evidence on the Characteristics of Cross Sectional Variation in Stock Returns

Firm sizes and book-to-market ratios are both highly correlated with the average returns of common stocks. Fama and French (1993) argue that the association between these characteristics and returns arise because the characteristics are proxies for nondiversifiable factor risk. In contrast, the evidence in this article indicates that the return premia on small capitalization and high book-to-market stocks does not arise because of the comovements of these stocks with pervasive factors. It is the characteristics rather than the covariance structure of returns that appear to explain the cross-sectional variation in stock returns.     

Term Structure of Consumption Risk Premia in the Cross Section of Currency Returns

I relate the downward‐sloping term structure of currency carry returns to compensation for currency exposures to macroeconomic risk embedded in the joint dynamics of U.S. consumption, inflation, nominal interest rate, and their stochastic variance. The interest rate and inflation shocks play a prominent role. Higher yield currencies exhibit higher multiperiod exposures to these shocks. The prices of these risk exposures are positive and sizeable across all investment horizons. The interest rate shock is qualitatively similar to the long‐run risk of Bansal and Yaron.     

股票横截面收益特性“异常”与行为金融学

面对股票市场横截面收益特性不符合CAPM，理论界有很多观点，其中最活跃和最有发展前途的就是所谓的行为金融学。行为金融学对传统的理性人假设进行了各种形式的放宽，研究非严格理性的投资的行为将对股票市场的特性带来怎样的影响。     

隔夜舆情的情绪强度特征与股票市场开盘收益率研究

本文对“股吧”交易时间段和非交易时间段发布的帖子总数、阅读量以及评论数进行文本计算,得到盘中和隔夜舆情相对情绪强度和舆情传播强度指标,并以此为研究目标,建立门限回归模型,揭示隔夜舆情相对情绪强度和股票开盘收益率之间的关系。实证结果表明,隔夜舆情相对情绪强度对股票开盘收益率存在非线性影响,当隔夜舆情相对情绪强度从绝对消极向绝对积极转变时,其对开盘收益率的影响会经历“负向影响——温和的负向影响——恶劣的负向影响——显著的正向影响”的过程。此外,本文证明了确切的消极舆情并没有引发市场恐慌,但在舆情态度不明确条件下,容易引发交易者猜忌而造成开盘收益率崩盘和抛售行为。     

Stock Returns and Open-Market Stock Repurchase Announcements

Recent studies document stock price underreactions and overreactions. This evidence is extended by studying open-market stock repurchase announcements. Repurchase announcements were chosen for the study because of the uncertainty regarding the appropriate interpretation of the repurchase announcement. Cross-section regression models are used to test the relation between the reaction to the repurchase announcement and returns in subsequent periods. The results indicate that the market overreacts to repurchase announcements that are deemed to be “good news” by the market. Neither reversal nor drift is observed following repurchase announcements considered to be “bad news” by the market. The results are robust and are not driven by a few influential observations, beta shifts, or bid-ask bounce.     

Stock Returns and the Business Cycle

This article examines whether movements in economic factors dictated by the dividend discount model can explain broad movements in stock returns over the business cycle. As anticipated, stock returns decrease throughout economic expansions and become negative during the first half of recessions. Returns are largest during the second half of recessions, suggesting an important role for expected earnings. These results are consistent with the notion that expected stock returns vary inversely with economic conditions, yet suggest that realized returns are especially poor indicators of expected returns prior to turning points in the business cycle.     

Nonlinear Pricing Kernels, Kurtosis Preference, and Evidence from the Cross Section of Equity Returns

This paper investigates nonlinear pricing kernels in which the risk factor is endogenously determined and preferences restrict the definition of the pricing kernel. These kernels potentially generate the empirical performance of nonlinear and multifactor models, while maintaining empirical power and avoiding ad hoc specifications of factors or functional form. Our test results indicate that preference-restricted nonlinear pricing kernels are both admissible for the cross section of returns and are able to significantly improve upon linear single- and multifactor kernels. Further, the nonlinearities in the pricing kernel drive out the importance of the factors in the linear multi-factor model.     

Differences in Perstistence in Aggregated and Disaggregated UK Stock Returns: A Reconciliation

Studies of the persistence in the returns series of UK stocks, using inter alia variance ratios, have documented clear differences between the relatively low levels of persistence in individual security returns and the relatively high levels of persistence in the returns of portfolios composed of these same securities. In this paper, I reconcile this contrast by showing that portfolio return variance ratios should not be expected to reflect (own) persistence levels in the component security returns, but instead should reflect a 'cross-persistence' between the securities. I calculate synthetic portfolio variance ratios from measures of security return 'cross-persistence' and find that they replicate closely the observed portfolio return variance ratios, which provides empirical support for the theoretical results.     

Information Uncertainty and Stock Returns

There is substantial evidence of short‐term stock price continuation, which the prior literature often attributes to investor behavioral biases such as underreaction to new information. This paper investigates the role of information uncertainty in price continuation anomalies and cross‐sectional variations in stock returns. If short‐term price continuation is due to investor behavioral biases, we should observe greater price drift when there is greater information uncertainty. As a result, greater information uncertainty should produce relatively higher expected returns following good news and relatively lower expected returns following bad news. My evidence supports this hypothesis.     

Investment Plans and Stock Returns

When the discount rate falls, investment should rise. Thus with time-varying discount rates and instantly changing investment, investment should positively covary with current stock returns and negatively covary with future stock returns. Aggregate nonresidential U.S. investment contradicts both these implications, probably because of investment lags. Investment plans, however, satisfy both implications. These investment plans, from a U.S. government survey of firms, are highly informative measures of expected investment and explain more than three-quarters of the variation in real annual aggregate investment growth. Plans have substantial forecasting power for excess stock returns, showing that time-varying risk premia affect investment.     

The Cross Section of Expected Real Estate Returns: Insights from Investment-Based Asset Pricing

Motivated by investment-based asset pricing, we show that two firm fundamentals, investment and profitability, have substantial predictive power for REIT returns. The return predictability of investment and profitability is not subsumed by conventional models and can be useful for understanding the cross section of expected REIT returns. To illustrate, we construct an investment-based factor model for REITs that consists of a market factor, an investment factor, and a profitability factor. The investment-based model outperforms conventional models in capturing well-known cross-sectional patterns in REIT returns. Our findings suggest that incorporating investment-based asset pricing can be a promising direction for future real estate finance research.     

Financially Constrained Stock Returns

We study the effect of financial constraints on risk and expected returns by extending the investment-based asset pricing framework to incorporate retained earnings, debt, costly equity, and collateral constraints on debt capacity. Quantitative results show that more financially constrained firms are riskier and earn higher expected stock returns than less financially constrained firms. Intuitively, by preventing firms from financing all desired investments, collateral constraints restrict the flexibility of firms in smoothing dividend streams in the face of aggregate shocks. The inflexibility mechanism also gives rise to a convex relation between market leverage and expected stock returns.     

Media Coverage and the Cross-section of Stock Returns

By reaching a broad population of investors, mass media can alleviate informational frictions and affect security pricing even if it does not supply genuine news. We investigate this hypothesis by studying the cross-sectional relation between media coverage and expected stock returns. We find that stocks with no media coverage earn higher returns than stocks with high media coverage even after controlling for well-known risk factors. These results are more pronounced among small stocks and stocks with high individual ownership, low analyst following, and high idiosyncratic volatility. Our findings suggest that the breadth of information dissemination affects stock returns.     

Stock Returns over the FOMC Cycle

We document that since 1994, the equity premium is earned entirely in weeks 0, 2, 4, and 6 in Federal Open Market Committee (FOMC) cycle time, that is, even weeks starting from the last FOMC meeting. We causally tie this fact to the Fed by studying intermeeting target changes, Fed funds futures, and internal Board of Governors meetings. The Fed has affected the stock market via unexpectedly accommodating policy, leading to large reductions in the equity premium. Evidence suggests systematic informal communication of Fed officials with the media and financial sector as a channel through which news about monetary policy has reached the market.