Topic
Intertemporal CAPM
About: Intertemporal CAPM is a research topic. Over the lifetime, 160 publications have been published within this topic receiving 41973 citations. The topic is also known as: Intertemporal CAPM, ICAPM.
Papers published on a yearly basis
Papers
TL;DR: In this article, the authors show that many of the CAPM average-return anomalies are related, and they are captured by the three-factor model in Fama and French (FF 1993).
Abstract: Previous work shows that average returns on common stocks are related to firm characteristics like size, earnings/price, cash flow/price, book-to-market equity, past sales growth, long-term past return, and short-term past return. Because these patterns in average returns apparently are not explained by the CAPM, they are called anomalies. We find that, except for the continuation of short-term returns, the anomalies largely disappear in a three-factor model. Our results are consistent with rational ICAPM or APT asset pricing, but we also consider irrational pricing and data problems as possible explanations. RESEARCHERS HAVE IDENTIFIED MANY patterns in average stock returns. For example, DeBondt and Thaler (1985) find a reversal in long-term returns; stocks with low long-term past returns tend to have higher future returns. In contrast, Jegadeesh and Titman (1993) find that short-term returns tend to continue; stocks with higher returns in the previous twelve months tend to have higher future returns. Others show that a firm's average stock return is related to its size (ME, stock price times number of shares), book-to-marketequity (BE/ME, the ratio of the book value of common equity to its market value), earnings/price (E/P), cash flow/price (C/P), and past sales growth. (Banz (1981), Basu (1983), Rosenberg, Reid, and Lanstein (1985), and Lakonishok, Shleifer and Vishny (1994).) Because these patterns in average stock returns are not explained by the capital asset pricing model (CAPM) of Sharpe (1964) and Lintner (1965), they are typically called anomalies. This paper argues that many of the CAPM average-return anomalies are related, and they are captured by the three-factor model in Fama and French (FF 1993). The model says that the expected return on a portfolio in excess of the risk-free rate [E(Ri) - Rf] is explained by the sensitivity of its return to three factors: (i) the excess return on a broad market portfolio (RM - Rf); (ii) the difference between the return on a portfolio of small stocks and the return on a portfolio of large stocks (SMB, small minus big); and (iii) the difference between the return on a portfolio of high-book-to-market stocks and the return on a portfolio of low-book-to-market stocks (HML, high minus low). Specifically, the expected excess return on portfolio i is,
7,550 citations
TL;DR: In this paper, a class of recursive, but not necessarily expected utility, preferences over intertemporal consumption lotteries is developed, which allows risk attitudes to be disentangled from the degree of inter-temporal substitutability, leading to a model of asset returns in which appropriate versions of both the atemporal CAPM and the inter-time consumption-CAPM are nested as special cases.
Abstract: This paper develops a class of recursive, but not necessarily expected utility, preferences over intertemporal consumption lotteries An important feature of these general preferences is that they permit risk attitudes to be disentangled from the degree of intertemporal substitutability Moreover, in an infinite horizon, representative agent context these preference specifications lead to a model of asset returns in which appropriate versions of both the atemporal CAPM and the intertemporal consumption-CAPM are nested as special cases In our general model, systematic risk of an asset is determined by covariance with both the return to the market portfolio and consumption growth, while in each of the existing models only one of these factors plays a role This result is achieved despite the homotheticity of preferences and the separability of consumption and portfolio decisions Two other auxiliary analytical contributions which are of independent interest are the proofs of (i) the existence of recursive intertemporal utility functions, and (ii) the existence of optima to corresponding optimization problems In proving (i), it is necessary to define a suitable domain for utility functions This is achieved by extending the formulation of the space of temporal lotteries in Kreps and Porteus (1978) to an infinite horizon framework A final contribution is the integration into a temporal setting of a broad class of atemporal non-expected utility theories For homogeneous members of the class due to Chew (1985) and Dekel (1986), the corresponding intertemporal asset pricing model is derived
5,012 citations
TL;DR: In this article, the power of dividend yields to forecast stock returns, measured by regression R2, increases with the return horizon, and the authors offer a two-part explanation: high autocorrelation causes the variance of expected returns to grow faster than the return-horizon.
4,329 citations
TL;DR: In this article, three models of equilibrium expected market returns which reflect the dependence of the market return on the interest rate were analyzed and the non-negativity restriction of the expected excess return was explicity included as part of the specification.
3,261 citations
TL;DR: In this article, the Sharpe-Lintner-black Capital Asset Pricing Model (CAPM) is used for assessing the risk of the cash flow from a project and for arriving at the appropriate risk premium.
Abstract: Most empirical studies of the static CAPM assume that betas remain constant over time and that the return on the value-weighted portfolio of all stocks is a proxy for the return on aggregate wealth. The general consensus is that the static CAPM is unable to explain satisfactorily the cross-section of average returns on stocks. We assume that the CAPM holds in a conditional sense, i.e., betas and the market risk premium vary over time. We include the return on human capital when measuring the return on aggregate wealth. Our specification performs well in explaining the cross-section of average returns. A SUBSTANTIAL PART OF the research effort in finance is directed toward improving our understanding of how investors value risky cash flows. It is generally agreed that investors demand a higher expected return for investment in riskier projects, or securities. However, we still do not fully understand how investors assess the risk of the cash flow on a project and how they determine what risk premium to demand. Several capital asset-pricing models have been suggested in the literature that describe how investors assess risk and value risky cash flows. Among them, the Sharpe-Lintner-Black Capital Asset Pricing Model (CAPM)1 is the one that financial managers use most often for assessing the risk of the cash flow from a project and for arriving at the appropriate
2,419 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 9 |
| 2020 | 3 |
| 2019 | 5 |
| 2018 | 5 |
| 2017 | 13 |
| 2016 | 7 |