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| Author: | Ludvigson, S.C. Ng, S. |
| Title: | The empirical risk-return relation: A factor analysis approach |
| Journal: | Journal of Financial Economics
2007 : JAN, VOL. 83:1, p. 171-222 |
| Index terms: | stock markets volatility return on investment |
| Freeterms: | Sharpe ratio |
| Language: | eng |
| Abstract: | The existing empirical work on risk-return relation uses relatively small amount conditioning information to estimate the conditional mean and conditional volatility of excess stock market returns. This paper presents methodology for incorporating a large amount of conditioning information in those estimates. It is found that three new factors, "volatility," "risk premium," and "real factors" contain important information about one-quarter-ahead excess returns that is not contained in predictor variables commonly used. Statistically, improvement in out-of-forecasting power is strongly significant and stable over time. The results of the study also support positive conditional risk-return correlation. |
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