Abstract
This essay models the returns for 14 large Swedish firms' stocks with a conditional multifactor model with time-varying beta terms. The data are monthly and the sample period is June 1992 to August 1997. The beta terms are modelled as linear functions of predetermined firm attributes, which are taken either from published accounting data or from consensus forecast data. The main findings are that the stock exchange is not efficient with respect to the consensus information and the lagged yield spread. It is also found that the lagged firm attributes are mainly associated with risk exposures. Using encompassing tests, the models based on consensus forecast data can for six firms unilaterally encompass the models based on accounting data. The reverse result holds for five firms. For most firms, the ‘best’ models are not rejected in out-of-sample forecast tests for the period September 1997 to December 1997.
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