Abstract
AbstractWe derive a parsimonious equilibrium three‐factor asset pricing model (cross‐sectional CAPM, CS‐CAPM) in which the realized cross‐sectional second and third moments of long‐short equity portfolio returns are the driving forces in terms of pricing cross‐sectional equity risk premia. Stock market segmentation implies that these two (nonmarket) factors are priced in equilibrium. The three‐factor model offers a large fit for the joint cross‐sectional risk premia associated with 26 prominent CAPM anomalies, with explanatory ratios around or above 40%. The CS‐CAPM compares favorably with multifactor models widely used in the literature. The cross‐sectional factors are not subsumed by traditional ICAPM risk factors.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.