Persistent and transitory components of firm characteristics: Implications for asset pricing

• 成果类型: Article
• 署名作者: Baba-Yara, Fahiz; Boons, Martijn; Tamoni, Andrea
• 署名单位: Indiana University System; IU Kelley School of Business; Indiana University Bloomington; Tilburg University; Universidade Nova de Lisboa; Rutgers University System; Rutgers University New Brunswick; Rutgers University Newark
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103808
• 发表日期: 2024
• 关键词: Characteristics; Persistent-transitory decomposition; cross-section; Return predictability; Discount rates

摘要

We study the horizon dimension of cross-sectional return predictability using a model where characteristics contain both persistent and transitory components. We test the implications of this model for the average returns of popular characteristic -based trading strategies at short versus long horizons after portfolio formation. Our evidence supports the claim that the relative compensation for persistent and transitory components varies across characteristics, in both magnitude and sign. Benchmark factor models cannot explain the returns of portfolios sorted on characteristics where either the persistent or transitory component is dominant. Finally, we discuss implications for the long-term discount rates of firms.