The cross section of expected holding period returns and their dynamics: A present value approach

• 成果类型: Article
• 署名作者: Lyle, Matthew R.; Wang, Charles C. Y.
• 署名单位: Northwestern University; Harvard University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2015.03.001
• 发表日期: 2015
• 页码: 505-525
• 关键词: EXPECTED RETURNS; Discount rates; Holding period returns; Fundamental valuation; Accounting data; Present value

摘要

We provide a tractable model of firm-level expected holding period returns using two firm fundamentals-book-to-market ratio and return on equity-and study the cross-sectional properties of the model-implied expected returns. We find that firm-level expected returns and expected profitability are time-varying but highly persistent and that forecasts of holding period returns strongly predict the cross section of future returns up to three years ahead. We show a highly significant predictive pooled regression slope for future quarterly returns of 0.86. The popular factor-based expected return models have either an insignificant or a significantly negative association with future returns. In supplemental analyses, we show that these forecasts are also informative of the time series variation in aggregate conditions. For a representative firm, the slope of the conditional expected return curve is more positive in good times, when expected short-run returns are relatively low, and the model-implied forecaster of aggregate returns exhibits modest predictive ability. Collectively, we provide a simple, theoretically motivated, and practically useful approach to estimating multi-period-ahead expected returns. (C) 2015 Elsevier B.V. All rights reserved.