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Cash-Flow Risk, Discount Risk, and the Value Premium / Tano Santos, Pietro Veronesi.
- Format:
- Book
- Author/Creator:
- Santos, Tano.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w11816.
- NBER working paper series no. w11816
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2005.
- Summary:
- A habit persistence, general equilibrium model with multiple assets matches both the time series properties of the market portfolio and the cross-sectional predictability of returns on price sorted portfolios, the value premium. Consistent with empirical evidence, the model shows that (a) value stocks are those with higher cash-flow risk; (b) the size of the value premium is larger in "bad times," due to time variation in risk preferences; (c) the unconditional CAPM fails, because of general equilibrium restrictions on the market portfolio. The dynamic nature of the value premium rationalizes why the conditional CAPM and a Fama and French (1993) HML factor outperform the unconditional CAPM.
- Notes:
- Print version record
- December 2005.
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