Abstract
We examine the time-series risk–return tradeoff among equity factors. We obtain a positive tradeoff for profitability and investment factors, which is consistent with the APT. Such relationship subsists when we control by the covariance with the market factor, which represents consistency with Merton's ICAPM. Critically, we obtain an insignificant risk–return relationship for the market and other factors. The tradeoff is weaker among international equity markets. The out-of-sample forecasting power tends to be economically significant for the investment and profitability factors. Our results suggest that the risk–return tradeoff is stronger within segments of the stock market than for the whole.
Original language | English |
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Article number | 101518 |
Peer-reviewed scientific journal | Journal of Empirical Finance |
Volume | 78 |
ISSN | 0927-5398 |
DOIs | |
Publication status | Published - 31.08.2024 |
MoE publication type | A1 Journal article - refereed |
Keywords
- 512 Business and Management
- Asset pricing
- ICAPM
- Profitability and investment factors
- Realized volatility
- Risk–return tradeoff