Tradable aggregate risk factors and the cross-section of stock returns

Seminários Acadêmicos
Insper Instituto de Ensino e Pesquisa

Palestrante: Ruy Ribeiro

We find that a single tradable aggregate factor, dividend growth, can explain the cross-section of size and value portfolio returns with lower average absolute pricing errors than the standard models. First, we identify five candidate factors based on recently available price data that capture both market expectations and risk premia on dividend growth, dividend level, equity risk, inflation, and interest rates. Second, we verify that the aggregate equity market return loads on returns of these factors indicating that the market portfolio can be decomposed into multiple priced components. Third, we test models containing these factors in the cross-section of size- and value-sorted portfolios and find that dividend growth is the only tradable factor return consistently priced in this cross-section. We find that some of the other factors are priced in the cross-section of other portfolios (sorted on dividend yield, earnings yield and cash-flow-to-price). Our results shed light on why the previous literature finds that the CAPM beta does a poor job in explaining the cross-section of size and bookto-market portfolios, showing that only one of the market return components is priced in the crosssection of size and book-to-market portfolios. These results are robust to the inclusion of credit risk, banking sector risk, and liquidity factors.

Data: 07/ 11 / 2013 (quinta-feira)

Horário: 12h

Local: Sala 207 – 2º andar 

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