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| Author: | Gomes, J. Kogan, L. Zhang, L. |
| Title: | Equilibrium cross section of returns |
| Journal: | Journal of Political Economy
2003 : AUG, VOL. 111:4, p. 693-732 |
| Index terms: | Capital assets Cross-sectional models Equilibrium analysis Stock returns |
| Language: | eng |
| Abstract: | A dynamic general equilibrium production economy is constructed to explicitly link expected stock returns to company characteristics such as company size and the book-to-market ratio. Stock returns are completely characterized by a conditional capital asset pricing model (CAPM) in the model. Size and book-to-market are correlated with the true conditional market beta and therefore appear to predict stock returns. The cross-sectional relations between company characteristics and returns can subisist even after one controls for typical empirical estimates of beta. |
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