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Monday, May 18, 2020 | History

2 edition of What do we really know about the cross-sectional relation between past and expected returns? found in the catalog.

What do we really know about the cross-sectional relation between past and expected returns?

Mark Grinblatt

# What do we really know about the cross-sectional relation between past and expected returns?

## by Mark Grinblatt

Written in English

Subjects:
• Stocks -- Prices -- Econometric models.,
• Stock price forecasting -- Econometric models.

• Edition Notes

The Physical Object ID Numbers Statement Mark Grinblatt, Tobias J. Moskowitz. Genre Econometric models. Series NBER working paper series -- no. 8744, Working paper series (National Bureau of Economic Research) -- working paper no. 8744. Contributions Moskowitz, Tobias J., National Bureau of Economic Research. Pagination 37, [10] p. ; Number of Pages 37 Open Library OL22430809M

The Cross Section of Long-Term Expected Returns * Zhongjin Lu June 5, Abstract E ective capital budgeting decisions require reliable estimates of long-term expected returns. I extract a predictor for long-term returns from the book-to-market ratio (B/M) by using a cross-sectional regression to control for B/M's ariationv associated. We use this CAPM logic to construct equity-premium forecasts. We compute a number of cross-sectional association measures between stocks’ expected-return proxies (including the book-to-market equity ratio, earnings yield, etc.) and stocks’ estimated betas. Low values of the cross-sectional association measures should on average be followed.

In other words, all information about the cross section of stock returns contained in the characteristics is summarized by |$\mu_{\it it}$|⁠. Assumption 4 implies that there is no systematic relation between the past sensitivity of each characteristic to expected returns and the part of the characteristic unrelated to expected by: 6. Expected stock returns Idiosyncratic return volatility Cross section 1. Introduction There is a growing literature documenting a negative relationship between observed volatility and future stock returns. In a frequently cited paper, Ang et al. () ﬁnd that both systematic and idiosyncratic volatilities of stock returns are negatively.

1. Introduction. This paper examines the relation between idiosyncratic volatility (IV) shocks and future stock returns. The major difference between this paper and previous studies such as, Ang, Hodrick, Xing, and Zhang (), Ang, Hodrick, Xing, and Zhang (), Fu (), Chua, Coh, and Zhang (), Huang, Liu, Rhee, and Zhang (), Hou and Loh (), Bali, Bodnaruk, Author: Richard G. Fenner, Yufeng Han, Zhaodan Huang. Cross-sectional Return Dispersion and the Payoﬁs of Momentum, Cross-sectional variation in mean stock returns tied to past relative-return strength and to book-to-market (B/M) equity ratios has an important role in both current ﬂnancial practice and we document a striking relation between the trend in the market’s cross-sectional.

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### What do we really know about the cross-sectional relation between past and expected returns? by Mark Grinblatt Download PDF EPUB FB2

Downloadable. Multihorizon temporal relationships between stock returns are complex due to confounding sources of return premia, microstructure effects, and changes in the relationship over various horizons.

We find the relation to be further complicated by the sign and consistency of the past return that also varies, somewhat sensibly, with the season and the tax environment. What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns.

and changes in the relationship over various horizons. We find the relation to be further complicated by the sign and consistency of the past return that also varies, somewhat sensibly, with the season and the tax environment.

but may point to. What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns. Article in SSRN Electronic Journal February with 14 Reads How we. Get this from a library. What do we really know about the cross-sectional relation between past and expected returns?.

[Mark Grinblatt; Tobias J Moskowitz; National Bureau of Economic Research.] -- Abstract: Multihorizon temporal relationships between stock returns are complex due to confounding sources of return premia, microstructure effects, and changes in the. Add tags for "What do we really know about the cross-sectional relation between past and expected returns?".

Be the first. Portfolio sorts: a de–nition A test based on a portfolio sort is usually conducted as follows: 1 Individual stocks are sorted according to a given characteristic (e.g., size, past returns, etc.) 2 These stocks are then grouped into N portfolios (usually 3, 5 or 10) 3 Average returns on these portfolios over a subsequent period are then computed 4 The signi–cance of the relationship is.

We extend and enrich the finding of a recent paper by Bali, Cakici, and Whitelaw () that shows a negative and significant relation between maximum daily returns over the past one month and expected stock returns.

We show that reversals continue for 6 months beyond the month of maximum daily returns. Thus mispricing is greaterFile Size: KB. It is well known that the volatility of stock returns varies over time. While considerable research has examined the time‐series relation between the volatility of the market and the expected return on the market (see, among others, Campbell and Hentschel () and Glosten, Jagannathan, and Runkle ()), the question of how aggregate volatility affects the cross‐section of Cited by: "What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns?," Yale School of Management Working Papers amz, Yale School of Management, revised 01 Feb Tobias J.

Moskowitz & Mark Grinblatt, "What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns. Cross-sectional analysis is a type of analysis that an investor, analyst or portfolio manager may conduct on a company in relation to that.

On the Cross‐sectional Relation between Expected Returns and Betas. Firm characteristics such as book-to-market ratio, market equity and one-year past return help explain the cross-section of average returns on U.S.

stocks. In this paper, we find that the same characteristics can be used to help explain differences in expected returns among national equity markets as a whole. Over forty years ago, one of the first tests of the capital asset pricing model (CAPM) found that the market beta was a significant explanator of the cross-section of expected returns.

The reported t -statistic of in Fama and MacBeth (, Table III) comfortably exceeded the usual cutoff of. Share Issuance and Cross-Sectional Returns.

directly influence book-to-market and expected returns and are therefore an important part of its evolution. an inverse relation between past. Conference on the cross section of returns.

What are the key factors explaining cross-sectional variation in expected returns. So there is no presumption other than esthetic really that we do not have as many risk factors as there are brands of toothpaste.

and Fama and MacBeth () do find a significant positive cross-sectional relation between security betas and expected returns, more recently Fama and French () and others find that the relation between betas and returns is negative, though not reliably different from zeroThis.

calls into question the link between risk and expected by: estimate expected stock returns in real time. For example, even though we know that B /M and accruals are signi cantly related to subsequent returns, we do not know whether forecasts derived from those variables line up well with true expected returns.

If past cross-sectional slopes are poor estimatesCited by: relation between, say, the book-to-market ratio and loadings on HML: a weighted average of the loadings for stocks in the high book-to-market portfolio must exceed that for stocks in the low book-to-market portfolio.2 Therefore, the relation between loadings and expected returns can be mechanical as well.

characteristic is found to be correlated with the cross-section of expected returns, a long-short portfolio can usually be constructed to proxy for the underlying unknown risk factor. It is this unknown risk factor that we have in mind when we classify.

Portfolio Sorts and Tests of Cross-Sectional Patterns in Expected Returns Andrew J. Patton University of Oxford Allan Timmermann University of California San Diego 3 October Abstract Portfolio sorts are used extensively in –nance to explore the relation between –rm charac-teristics and expected returns.

This paper is about one of the most argued subjects in the financial theory: the forecast of future returns. We work with the model of multifactor of Fama and French, and the regression presented for Grinblatt and Moskowitz (), that work with the size of the company and the book-to-value.

We present here also an ample analysis of the monthly autocorrelations between the most .We develop a series of cross-sectional regression specifications to forecast skewness in the daily returns of individual stocks.

Negative skewness is most pronounced in stocks that have experienced (1) an increase in trading volume relative to trend over the prior six months, consistent with the model of Hong and Stein (NBER Working Paper, ), and (2) positive Cited by: and Fama and MacBeth () do find a significant positive cross-sectional relation between security betas and expected returns, more recently Fama and French () find that the relation between betas and returns is negative, though not reliably different from zero.

This calls into question the link between risk and expected returns.