Working Paper: NBER ID: w11323
Authors: Murillo Campello; Long Chen; Lu Zhang
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.
Keywords: Expected Returns; Yield Spreads; Asset Pricing
JEL Codes: G12; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market beta (G10) | expected equity returns (G12) |
| economic cycles (E32) | expected value premium (D46) |
| historical performance (N10) | future expectations (D84) |