Asset pricing restrictions on predictability / Frans de Roon in Management science, Vol. 58 N° 10 (Octobre 2012)  

Public ISBD [article]  inManagement science > Vol. 58 N° 10 (Octobre 2012) . - pp. 1916-1932 Titre : Asset pricing restrictions on predictability : Frictions matter Type de document : texte imprimé Auteurs : Frans de Roon, Auteur ; Marta Szymanowska, Auteur Année de publication : 2012 Article en page(s) : pp. 1916-1932 Note générale : Management Langues : Anglais (eng) Mots-clés : Time-series predictability Cross-sectional Asset pricing tests Market frictions Résumé : U.S. stock portfolios sorted on size; momentum; transaction costs; market-to-book, investment-to-assets, and return-on-assets (ROA) ratios; and industry classification show considerable levels and variation of return predictability, inconsistent with asset pricing models. This means that a predictable risk premium is not equal to compensation for systematic risk as implied by asset pricing theory. We show that introducing market frictions relaxes these asset pricing moments from a strict equality to a range. Empirically, it is not short sales constraints but transaction costs (below 35 basis points) that help to reconcile the observed predictability with linear portfolio return-based factor models, and partly with the durable consumption model. Across the sorts, predictability in industry returns can be reconciled with all models considered with only a 25 basis point transaction cost, whereas for momentum and ROA portfolios, up to 115 basis points are needed. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/10/1916.abstract [article] Asset pricing restrictions on predictability : Frictions matter [texte imprimé] / Frans de Roon, Auteur ; Marta Szymanowska, Auteur . - 2012 . - pp. 1916-1932. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 10 (Octobre 2012) . - pp. 1916-1932 Mots-clés : Time-series predictability Cross-sectional Asset pricing tests Market frictions Résumé : U.S. stock portfolios sorted on size; momentum; transaction costs; market-to-book, investment-to-assets, and return-on-assets (ROA) ratios; and industry classification show considerable levels and variation of return predictability, inconsistent with asset pricing models. This means that a predictable risk premium is not equal to compensation for systematic risk as implied by asset pricing theory. We show that introducing market frictions relaxes these asset pricing moments from a strict equality to a range. Empirically, it is not short sales constraints but transaction costs (below 35 basis points) that help to reconcile the observed predictability with linear portfolio return-based factor models, and partly with the durable consumption model. Across the sorts, predictability in industry returns can be reconciled with all models considered with only a 25 basis point transaction cost, whereas for momentum and ROA portfolios, up to 115 basis points are needed. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/10/1916.abstract

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