In e empo al Ma ke Risks and he C oss-Sec ion
o G eek A e age Re u ns
Michail Koubou os1
Uni e si y o Peloponnese
Eka e ini Panopoulou2
Na ional Uni e si y o I eland & Uni e si y o Pi aeus
This d a : Sep embe 18, 2005
1Co esponding au ho : Uni e si y o Peloponnese, Depa men o Economics, Te ma
Ka aiskaki, 221 00 T ipolis, G eece. Phone: (+30) 2710 230129, ax: (+30) 2710 230139,
e-mail: m.koub[email p o ec ed]. We a e g a e ul o Gikas Ha dou elis, Dimi ios Mallia opu-
los, Jack Meye and pa icipan s a a ious semina s a he Uni e si y o Peloponnese, he
Uni e si y o Pi aeus and he Na ional Uni e si y o I eland o help ul commen s and sug-
ges ions. We acknowledge …nancial suppo om he G eek Minis y o Educa ion and he
Eu opean Union unde “Py hago as”g an . The usual disclaime applies.
2Depa men o Banking and Financial Managemen , Uni e si y o Pi aeus, G eece and
Depa men o Economics, Na ional Uni e si y o I eland Maynoo h, email: [email protected].
Abs ac
This pape examines whe he he o e all ma ke isk along wi h isks e‡ec ing unce -
ain y ela ed o he long un dynamics o ma ke cash ‡ows (di idends) and discoun
a es ( e u ns) p ice a e age e u ns on single-so ed po olios o he G eek s ock
ma ke . Following Campbell and Vuol eenaho (Ame ican Economic Re iew, 2004) we
check whe he hese wo ypes o isk p o ide an empi ical imp o emen o e he s a ic
CAPM and i cash-‡ow isk is mo e impo an han discoun - a e isk, as a a ional
I-CAPM isk s o y would p edic . Ou esul s sugges ha he wo-be a in e empo al
model pe o ms a leas as well as he Fama-F ench (Jou nal o Financial Economics,
1993) h ee ac o model since i explains hal o he c oss-sec ional a ia ion in a e -
age e u ns and deli e s an economically and s a is ically accep able es ima e o he
coe¢ cien o ela i e isk a e sion. Mo e impo an ly, despi e he ela i e impo ance
o ma ke discoun - a e isk, i is ma ke di idend-g ow h isk ha u ns ou o be a
mo e impo an in de e mining a e age e u ns on G eek po olios.
JEL: G11, G12, G14
Keywo ds: CAPM, be a, cash ‡ow isk, discoun a e isk, isk a e sion.
1 In oduc ion
Nume ous s udies ha e shown ha he single be a CAPM, a leas in i s uncondi ional
o m, pe o ms poo ly since he c oss-sec ional a ia ion in uncondi ional ma ke be as
canno ma ch he obse ed sp ead in a e age excess e u ns.1Recen ly, Campbell and
Vuol eenaho (2004) and Campbell, Polk and Vuol eenaho (2005) show ha he ma ke
be a can be decomposed in o a ela i ely bad cash-‡ow be a, e‡ec ing news abou he
ma ke ’s u u e cash ‡ows (di idend g ow h a es), and a ela i ely good discoun - a e
be a, e‡ec ing news abou he ma ke ’s u u e discoun a es ( e u ns). Acco ding
o hei model he wo pa s o o al ma ke isk ha e di¤e en implica ions in asse
p icing. Speci…cally, since ma ke cash-‡ow shocks and discoun - a e shocks ep esen
pe manen and empo a y shocks o o e all weal h espec i ely, a ional conse a i e
in es o s a e pa icula ly a e se o he o me and equi e a highe p emium. Mo e
impo an ly, his cash-‡ow isk p emium should be a mul iple o hei a i ude owa d
isk. Empi ically, Campbell and Vuol eenaho (2004) …nd ha hei decomposi ion
could sol e he small- alue puzzle ound in US da a.
In his pape we s udy he c oss-sec ional beha io o cash-‡ow and discoun - a e
isks along wi h hei abili y o p ice e u ns o a se o 25 single so ed po o-
lios o he G eek s ock ma ke (A hens S ock Exchange, A.S.E.) o he pe iod om
1991 o 2003. Using he empi ical me hodology o Campbell (1991), Campbell and
Mei (1993), Campbell and Vuol eenaho (2004) and Campbell, Polk and Vuol eenaho
(2005), we … s es ima e ma ke cash-‡ow and discoun - a e news and be as and hen
check whe he he sensi i i ies o po olio e u ns o hese o al ma ke isk compo-
nen s can se e as su¢ cien isk measu es which a e p iced in A.S.E. e u ns. Al hough
some ecen s udies examine he p ope ies o he wo componen s o agg ega e ma ke
e u n in se e al eme ging ma ke s (e.g. Phylak is and Ra azzolo, 2002), he e is no
o he s udy, o he bes o ou knowledge, which examines he asse p icing implica ions
o his decomposi ion using A.S.E. da a. In his espec , ou s udy comes as a di ec
complemen o hese empi ical …ndings since i p o ides some new insigh s, in e ms
o a small and eme ging ma ke , on he independen ole o economic undamen als in
p icing he c oss-sec ion o a e age s ock e u ns.
Ou esul s indica e ha he wo-be a decomposi ion o he o al ma ke isk in-
c eases he abili y o he s a ic, single ac o , CAPM o p ice G eek s ock e u ns.
Mo e in de ail, all po olios exhibi conside able sp ead in isk exposu e o ma ke
1Fo a ecen e iew on he CAPM li e a u e see, among o he s, Fama and F ench (2004).
1
cash-‡ow and discoun - a e isk and bo h ypes o isk a e c oss-sec ionally p iced.
Fu he mo e, by employing a disc e e- ime in e empo al asse p icing model, we …nd
ha cash-‡ow isk is mo e impo an o he c oss-sec ion o a e age A.S.E. e u ns
since i embodies a be a- isk p emium ha is much highe han he one embodied in
discoun - a e isk. Speci…cally, he wo-be a model cap u es almos hal o he a ia-
ion in po olio mean e u ns, pe o ms sligh ly be e han he popula Fama-F ench
(1993) model and deli e s meaning ul and highly signi…can alues o isk a e sion.
O e all, and in line wi h he US …ndings o Campbell and Vuol eenaho (2004) and
Campbell, Polk and Vuol eenaho (2005), he wo-be a model explains he sp ead in
e u ns ound ac oss alue and size po olios and hus p o ides aluable insigh s o
he small-o e -la ge and alue-o e -g ow h puzzles.
The emainde o he pape is o ganized as ollows: Sec ion 2 p o ides he heo-
e ical decomposi ion o o al ma ke isk in o wo pa s; e u n isks associa ed wi h
ma ke ’s cash-‡ow and discoun - a e dynamics. I also de elops he in e empo al as-
se p icing amewo k ha will be used o he asse p icing es ima ion. The da ase
and he econome ic me hodology employed o ex ac he news componen s o ma ke
unexpec ed e u ns a e gi en in Sec ion 3. Sec ion 4 p esen s he empi ical esul s and,
…nally, Sec ion 5 o¤e s some concluding ema ks.
2 The Model
Agen s a e assumed o choose hei op imal consump ion and po olio posi ions using
he ecu si e u ili y amewo k p o ided by Eps ein and Zin (1989, 1991) and Weil
(1989). The li e ime u ili y unc ion o he in es o is gi en by he ecu si e u ili y
unc ion U ;de…ned o e cu en eal consump ion, C , and u u e expec ed u ili y o
eal consump ion, E (U +1):
U [C ; E (U +1)] = h(1 )C
1

+E U1
+1 1
i
1(1)
whe e 0<  < 1is he subjec i e discoun ac o ,  > 0is he cons an , unde his
speci…ca ion, coe¢ cien o ela i e isk a e sion (CRRA), is a pa ame e de…ned as
= (1 )=(1 1
);and  > 0is he elas ici y o in e empo al subs i u ion (EIS)
be ween cu en and expec ed u u e consump ion. Equa ion (1) has he ad an age
o b eaking he igh link be ween CRRA and EIS gi en by powe u ili y (=1
),
2
hus, disconnec ing in es o s’ isk a i ude ac oss s a es o na u e (desc ibed by )
and ac oss ime (desc ibed by ).
The consume is assumed o …nance all he consump ion plan en i ely om he
o al eal weal h W ;gi en he ollowing dynamic budge cons ain :
W +1 = (1 + RW; +1)(W C )(2)
whe e RW; +1 is he ne eal e u n on o al weal h. Eps ein and Zin (1989) sol e
o he op imal po olio and consump ion policies and show ha he ollowing se o
condi ional momen es ic ions hold o each asse iand he o al-weal h po olio W:
E hG
R1
W; +1Ri; +1i= 1; o i= 1; :::; N (3)
whe e G +1
de
=C +1
C is he op imally chosen g oss g ow h a e o eal consump ion
be ween and +1. The abo e se o non-linea momen es ic ions can be linea ized
using he assump ion o join condi ional log-no mali y o asse e u ns and consump-
ion in he spi i o Hansen and Single on (1983). Using hese s ong assump ions
along wi h he dynamic budge cons ain in (2), Campbell (1993, 1996) de i es he
ollowing c oss-sec ional linea es ic ions on asse s’ isk p emia ha places no ole in
consump ion as a p iced isk ac o :
E Re
i; +1=Co ( i; +1; W; +1 E [ W; +1]) + (1 )Co ( i; +1;NDR
W; +1);(4)
whe e E Re
i; +1=E [Ri; +1]R ; +1, and R ; +1 is he simple e u n on he isk- ee
asse . The abo e equa ion can be iewed as a disc e e- ime e sion o Me on’s (1973)
I-CAPM whe e changes in he u u e in es men oppo uni y se s (cap u ed by news
abou u u e o al weal h po olio e u ns, NDR
W; +1) a e also p iced in addi ion o he
con empo aneous ma ke isk ( he … s co a iance e m).
Campbell and Vuol eenaho (2004) go one s ep u he and using he unexpec ed
e u n decomposi ion de eloped by Campbell and Shille (1988a) and u he ex ended
by Campbell (1991) b eak he … s ac o (ma ke inno a ion) in o news abou u u e
di idend (cash-‡ows) g ow h a es and e u ns (discoun - a es). Fo mally, Campbell
(1991) has de i ed he ollowing app oxima e log linea decomposi ion o e u ns in o
ime + 1 e ision in expec a ions (news) abou he p esen alue o all u u e o al-
weal h di idend g ow h a es (cash-‡ow news, NCF
W) and he ime + 1 e ision in
expec a ions abou he p esen alue o all u u e o al-weal h e u ns (discoun - a e
3

news, NDR
W):
W; +1 E +1 [ W; +1] = NCF
W; +1 NDR
W; +1;(5)
whe e NCF
W; +1 =E +1 hP1
j=0 jdW; +1+jiE hP1
j=0 jdW; +1+jiand
NDR
m; +1 =E +1 hP1
j=1 j W; +1+jiE hP1
j=1 j W; +1+ji,PW +1 is he eal ag-
g ega e (ma ke ) s ock p ice measu ed a he end o pe iod + 1 (ex-di idend),
dW; +1 = log(DW; +1)is he log o he eal di idend paymen o o al weal h du ing
his pe iod,
W; +1 = log(PW; +1+DW; +1
PW; )is he one-pe iod holding log eal g oss e u n on he
o al weal h po olio, W= 1=[1 + exp(W)] and W=E[log(dW; pW; )] is he
uncondi ional mean o he log agg ega e di idend-p ice a io. The … s e m in (5) is
he ime + 1 e ision in di idend g ow h expec a ions and ep esen s a pe manen
posi i e e¤ec on o al weal h since i is ne e e e sed subsequen ly, whe eas he
second one is he ime + 1 e ision in expec a ions abou u u e e u ns on o al
weal h and hus can be iewed as a empo a y shock o he o al weal h since he
unexpec ed capi al gain oday ( W; +1 E +1 [ W; +1]>0) is a a cos o lowe u u e
in es men oppo uni ies, i.e. E +1 hP1
j=1 j W; +1+jiE hP1
j=1 j W; +1+ji<0.
Using he abo e decomposi ion o he o al weal h unexpec ed e u n and he wo
ac o asse p icing es ic ion in (4) we ge he ollowing asse p icing model ha
assigns di¤e en oles o agg ega e di idend g ow h a es’news and e u ns’news in
de e mining asse isk p emia:
E Re
i; +1=Co ( i; +1; NCF
W; +1) + Co ( i; +1;NDR
W; +1);(6)
The co a iance isk p emium ep esen a ion in (6) can ha e an equi alen be a-like
p emium ep esen a ion (Coch ane, 2001). Mul iplying and di iding by he a iance
o o al-weal h e u n inno a ions, V a ( W; +1 E [ W; +1]), we ge :
E Re
i; +1=CF; i;CF; +DR; i;DR; (7)
wi h CF; =V a ( W; +1 E [ W; +1]) ,DR; =V a ( W; +1 E [ W; +1]) and:
i;W; =Co ( i; +1; NCF
W; +1)
V a ( W; +1 E [ W; +1]) +Co ( i; +1;NDR
W; +1)
V a ( W; +1 E [ W; +1])
=i;CF; +i;DR; (8)
4
Equa ion (8) s a es ha he equi ed isk p emium on asse iis join ly de e mined
by he be as o i s e u n wi h he co esponding decomposed componen s o he o al
ma ke isk; cash-‡ow and discoun - a e be a ha add o he ull o al weal h, CAPM,
be a. A conse a i e isk-a e se in es o ( > 1) demands a highe isk p ice o isks
associa ed wi h o al-weal h cash-‡ow (di idend g ow h) unce ain y (i;CF ) a he
han o isks linked o shocks o o al weal h po olio e u ns ( i;DR; ), since any
posi i e (nega i e) shock o weal h discoun a es is a a bene… (cos ) o wo se u u e
in es men oppo uni ies, whe eas he in es o is ne e compensa ed la e o e e y
posi i e (nega i e) shock o di idends. Hence, he be a p ice o ma ke cash-‡ow isk
CF is a mul iple o he be a isk p ices o ma ke discoun - a e isk DR. Thus, o
a conse a i e in es o i mus be CF > DR >0.
In o de o ge compa able esul s o he empi ical li e a u e o he uncondi ional
CAPM and, mo e impo an ly, o he empi ical …ndings o he wo-be a model o
Campbell and Vuol eenaho (2004) ha places a ela i ely mo e impo an ole in
cash-‡ow isk, we condi ion down equa ion (7) and p oceed wi h i s uncondi ional
e sion.
3 Da a and Empi ical Me hodology
Ou s udy is based on mon hly G eek asse and mac oeconomic da a o he pe iod
om June 1991 o May 2003 (133 mon hly obse a ions) ob ained om he Da as eam
In e na ional da abase. Speci…cally, ou da a consis o di¤e en se s o common s ock
po olios so ed on a ious … m speci…c cha ac e is ics and isk measu es and a se
o economy-wide a iables ha se e as ins umen s. Following he common p ac ice,
hese a iables ha e been selec ed unde he assump ion ha hey o ecas u u e
e u ns. Las ly, we assume ha he ma ke ( alue-weigh ed) po olio is a good p oxy
o he o al-weal h po olio in he G eek economy, so ha RW=RM.
We employ a a ian o he Fama and F ench (1993) me hodology o cons uc
alue-weigh ed e u ns on 25 … m-cha ac e is ic single-so ed po olios on book- o-
ma ke , di idend-yield, size, p ice-ea nings and 3-mon h momen um, and he wo
size and book- o-ma ke ac o mimicking po olios, Small-Minus-Big (SMB) and
High-Minus-Low (HML), espec i ely. The la e ac o mimicking po olios will be
used as a benchma k in ou asse p icing es s. In June, e e y yea , we … s b eak
he ull menu o A.S.E. common s ocks a ailable in o 5 g oups (based on accoun ing
5
in o ma ion) each con aining an equal numbe o s ocks and second, we compu e he
simple ma ke capi aliza ion weigh ed-a e age mon hly holding pe iod e u n o each
o he 5 po olios o he ollowing yea using mon hly closing p ices. The annual
di idend paid on each s ock is di ided by 12 and added o he mon hly closing p ice,
so ha ou e u ns include di idends. The p ocedu e is epea ed e e y yea and we
end up wi h ime-se ies da a o simple e u ns on each cha ac e is ics-so ed po olio.
Al hough he model in (7) is w i en in eal log e u ns, we assume ha o he mon hly
es in e al we employ, in‡a ion a es a e almos ully o ecas able, and hus we p oxy
eal log e u ns wi h nominal log e u ns.
The agg ega e alue mimicking ac o po olio HML was c ea ed using he 40-20-
40 ule employed by Fama and F ench (1993). Howe e , o he SMB po olio, we
adjus he o ma ion mechanism o accoun o peculia i ies o he G eek da a. We use
he 70 h quan ile o he ma ke alue ins ead o he median ha was used by Fama
and F ench. Using a la ge b eakpoin we can c ea e a dis ibu ion o he ma ke
alue simila o ha o Fama and F ench, while he small capi aliza ion po olio
ep esen s on a e age he 8% o he o al A.S.E. ma ke . A he end o June o
each yea , we c ea e he size and book- o-ma ke double-so ed po olios o Fama
and F ench (1993) (SL; SM; SH; BL; BM and BH) and calcula e he alue-weigh ed
mon hly e u ns o he nex 6 mon hs. Then, he agg ega e book- o-ma ke and
size po olios a e de…ned as HML = (SH +BH)=2(SL +BL)=2and SMB =
(SL +SM +SH)=3(BL +BM +BH)=3 espec i ely.
The second se used in ou analysis consis s o a iables ha ha e p o en success ul
in p edic ing he u u e s a e o he economy and asse e u ns. The inno a ions
o hese a iables a e used o gene a e cash-‡ow and discoun - a e news h ough a
VAR(1) speci…ca ion. Mo e in de ail, we use: (a) he mon hly log di¤e ence o he
OECD leading indica o ,  log (LI), (b) he ma ke log p ice-ea nings a io, pe; and
(c) he small-s ock alue sp ead, V S; de…ned as he di¤e ence be ween he log(B/M)
o he small high-B/M po olio and he log(B/M) o he small low-BE/ME po olio.2
The asse p icing model in (7) uses cash-‡ow and discoun - a e news as p iced
ac o s. We ollow Campbell (1991) and we es ima e hem using a … s -o de ec o
au o eg essi e, VAR(1), model. We … s es ima e expec ed e u ns and he e isions
2Recen ly, he alue sp ead V S a iable has been ound o be a good o ecas e o US e u ns.
See, among o he s, Campbell and Vuol eenaho (2004), Campbell, Polk and Vuol eenaho (2005) and
Koubou os, Mallia opulos and Panopoulou (2005). Following his e idence we use he alue sp ead
as a p edic o o A.S.E. e u ns.
6
in expec a ions abou u u e e u ns (E [ M; +1]and (E +1E )P1
j=1 j
M M; +1+j,
espec i ely) and hen we use M; +1 and equa ion (5) o back ou he ma ke cash-
‡ow news. This p ac ice has an impo an ad an age as i elies only on he dynamics
o expec ed e u ns and he e is no need o modelling he dynamics o di idends since
he la e a e de i ed by he VAR es ima es and he ealiza ions o e u ns and s a e
a iables.
We assume ha he da a a e gene a ed by he ollowing VAR(1) model:
y +1 =  + Ay +u +1;(9)
whe e y +1 = ( m; +1; y1; +1; :::; ym; +1)is a m1 ec o o a iables con aining e u ns
as i s … s elemen and (m1) a iables which ha e p edic i e powe o e u ns, is
am1 ec o o cons an s and Ais a mmma ix o cons an s. We es ima e (9)
o he ma ke e u n and hen compu e cash-‡ow and discoun - a e news as linea
unc ions o he + 1 ec o o inno a ions, u +1:
NDR
M; +1 =e10u +1 NCF
M; +1 = (e10+e10)u +1;(10)
whe e e1is a m1 ec o wi h he … s elemen equal o uni y and he emaining
elemen s equal o ze o. The mapping o he shock ec o o he news ec o s is gi en by
A(ImA)1.e10cap u es he long- un signi…cance o each indi idual VAR(1)
shock o discoun - a e expec a ions. The g ea e he absolu e alue o a a iables
coe¢ cien in he e u n p edic ion equa ion ( he op ow o A), he g ea e he weigh
he a iable ecei es in he discoun - a e-news o mula (10). Also, mo e pe sis en
a iables should also ecei e mo e weigh , which is cap u ed by he e m (ImA)1.
4 Empi ical E idence
4.1 Es ima ion o Cash-Flow and Discoun -Ra e News and
Be as
Table 1 epo s pa ame e es ima es o he ma ke VAR(1) model. Ou es ima es
sugges ha he s a e a iables ha e some p edic i e powe o s ock ma ke excess
e u ns (adj.-R2o 9:5%). Speci…cally, mon hly ma ke e u ns display some deg ee
7
Re e ences
[1] B ennan Michael, Ashley Wang and Yihong Xia (2004), Es ima ion and es o a
simple model o in e empo al asse p icing, Jou nal o Finance 59, 1743-1775.
[2] Campbell, John (1991), A a iance decomposi ion o s ock e u ns, Economic
Jou nal 101, 157-159.
[3] Campbell, John (1993), In e empo al asse p icing wi hou consump ion da a,
Ame ican Economic Re iew 83, 487-512.
[4] Campbell, John (1996), Unde s anding isk and e u n, Jou nal o Poli ical Econ-
omy 104, 298-345.
[5] Campbell, John and Jiapping Mei (1993), Whe e do be as come om? Asse
p icing dynamics and he sou ces o sys ema ic isk, Re iew o Financial S udies,
6, 567-592.
[6] Campbell, John, Ch is o e Polk and Tuomo Vuol eenaho (2005), G ow h o glam-
ou ? Fundamen als and sys ema ic isk in s ock e u ns, NBER Wo king Pape
No. 11389.
[7] Campbell, John and Robe Shille (1988a), The di idend-p ice a io and expec-
a ions abou u u e di idends and discoun ac o s, Re iew o Financial S udies
1, 195-228
[8] Campbell, John and Robe Shille (1988b), S ock p ices, ea nings and expec ed
di idends, Jou nal o Finance, 43, 661-676.
[9] Campbell, John and Robe Shille (1998), Valua ion a ios and he long- un
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16
Table 1. VAR es ima es o ma ke po olio
m; +1  log (LI +1)p +1 e +1 V S +1
cons an 0:033
(0:021)
0:023
(0:009) 0:055
(0:029)
0:032
(0:041)
m; 0:147
(0:086)
0:056
(0:039)
0:043
(0:119)
0:185
(0:165)
 log (LI ) 0:194
(0:160) 0:528
(0:073)
0:077
(0:223)
0:405
(0:308)
p e 0:007
(0:015)
0:011
(0:007)
0:969
(0:021) 0:044
(0:028)
V S 0:036
(0:006)
0:003
(0:006)
0:034
(0:018)
0:967
(0:025)
R29:5% 32:9% 94:7% 91:9%
F-s a . 3:530 16:499 598:4 384:70
LM Tes o He e oscedas ici y (ARCH Tes : lag = 4)
^u W^u log(LI)^upe^uV S
F-s a . 0:327 1:081 2:134 0:709
p- alue [0:859] [0:369] [0:080] [0:593]
Table 2: Ma ke po olio cash-‡ow and discoun - a e news
Co a iance ma ix o news News co /s .d.
NCF
MNDR
MNCF
MNDR
M
NCF
M0:0081 0:0034 NC
M0:091 0:563
NDR
M0:0034 0:0046 ND
M0:563 0:215
Co ela ions o inno a ions wi h news Func ions
Inno a ions/News NCF
mNDR
mNCF
MNDR
M
M0:679 0:225 Mshock 1:052 0:052
 log (LI) 0:277 0:295  log (LI)shock 0:683 0:683
pe0:224 0:398 peshock 0:273 0:273
V S 0:603 0:855 V S shock 0:399 0:399
17
Table 3. Summa y s a is ics
Po olio Mean S .De 1236912
Ma ke po olio
9.85 3.06 0.13 0.08 0.06 0.05 -0.11 -0.05
Panel A. Book- o-ma ke Po olios
High 16.07 3.67 0.12 0.01 0.16 0.12 -0.10 0.02
2 8.16 3.42 0.19 0.09 0.07 0.03 -0.13 -0.06
3 9.99 3.44 0.16 0.14 -0.02 0.07 -0.15 0.00
4 5.63 3.30 0.13 0.16 0.09 0.00 -0.03 -0.07
Low 8.59 3.25 0.15 0.06 0.04 0.05 -0.01 -0.10
Panel B. Di idend-Yield Po olios
High 13.62 2.96 0.07 0.02 0.06 0.05 -0.17 -0.02
2 6.05 3.47 0.11 0.15 0.00 0.06 -0.13 0.06
3 9.40 3.39 0.18 0.11 0.01 0.00 -0.06 -0.09
4 8.25 3.44 0.15 0.09 0.15 0.05 -0.06 -0.08
Low 6.13 3.50 0.16 0.22 0.05 0.06 -0.11 -0.08
Panel C. Size Po olios
La ge 9.08 2.97 0.10 0.02 0.02 0.04 -0.15 -0.02
2 9.05 3.69 0.19 0.19 0.16 0.09 0.03 -0.03
3 14.68 4.09 0.26 0.17 0.19 0.07 0.03 -0.07
4 16.28 4.33 0.25 0.23 0.25 0.13 0.05 -0.05
Small 34.27 5.02 0.27 0.26 0.27 0.15 0.08 -0.15
Panel D. P ice- o-Ea nings Po olios
High 5.53 3.89 0.24 0.14 0.08 -0.03 -0.02 -0.12
2 6.60 3.53 0.17 0.11 0.04 0.06 0.00 -0.06
3 10.19 3.37 0.18 0.24 0.08 0.11 -0.10 -0.04
4 9.32 2.99 0.13 0.10 -0.01 0.11 -0.11 0.02
Low 19.80 3.05 0.13 0.07 0.03 0.14 -0.10 0.03
Panel E. 3-Mon h Momen um Po olios
Winne s 17.78 3.37 0.28 0.22 0.19 0.11 -0.11 -0.06
2 13.84 3.52 0.09 0.12 0.10 0.10 -0.15 -0.10
3 13.70 3.56 0.21 0.22 0.09 0.06 -0.01 -0.03
4 5.26 3.71 0.10 0.08 0.01 0.03 0.06 -0.09
Lose s 3.01 4.03 0.04 0.04 0.01 0.08 -0.06 0.01
18
Table 4. CAPM, Cash-‡ow, discoun - a es, HML and SMB be as
Panel A. Book- o-ma ke po olios
b
i;m s.e. b
i;CF s.e.:b
i;DR s.e. b
i;HML s.e. b
i;SMB s.e.
High 1.445 0.222 0.760 0.131 0.685 0.235 -0.185 0.246 0.364 0.243
2 1.300 0.216 0.714 0.149 0.586 0.253 -0.189 0.218 0.224 0.205
3 1.170 0.196 0.706 0.162 0.464 0.226 0.038 0.233 0.140 0.224
4 1.183 0.218 0.621 0.122 0.562 0.235 0.244 0.245 0.027 0.190
Low 0.893 0.212 0.479 0.124 0.414 0.232 0.374 0.210 0.077 0.195
Panel B. Di idend-yield po olios
b
i;m s.e. b
i;CF s.e.:b
i;DR s.e. b
i;HML s.e. b
i;SMB s.e.
High 1.025 0.156 0.684 0.132 0.341 0.186 -0.177 0.154 -0.030 0.163
2 1.046 0.217 0.633 0.185 0.412 0.240 -0.115 0.232 0.022 0.209
3 1.270 0.240 0.681 0.135 0.589 0.257 0.274 0.239 0.005 0.199
4 1.102 0.262 0.526 0.122 0.576 0.258 0.351 0.232 0.379 0.221
Low 1.170 0.272 0.577 0.151 0.593 0.241 0.346 0.228 0.251 0.227
Panel C. Size po olios
b
i;m s.e. b
i;CF s.e.:b
i;DR s.e. b
i;HML s.e. b
i;SMB s.e.
La ge 0.850 0.141 0.608 0.107 0.242 0.190 0.037 0.155 -0.198 0.188
2 1.474 0.312 0.641 0.171 0.834 0.279 0.151 0.288 0.572 0.203
3 1.713 0.372 0.632 0.183 1.081 0.301 0.103 0.342 1.025 0.220
4 1.833 0.398 0.648 0.171 1.185 0.307 0.233 0.352 1.434 0.238
Small 2.275 0.517 0.714 0.234 1.561 0.363 0.154 0.430 1.764 0.308
Panel D. P ice- o-ea nings po olios
b
i;m s.e. b
i;CF s.e.:b
i;DR s.e. b
i;HML s.e. b
i;SMB s.e.
High 1.364 0.287 0.658 0.163 0.706 0.275 0.518 0.296 0.402 0.220
2 1.178 0.194 0.624 0.128 0.554 0.227 0.287 0.237 0.115 0.225
3 1.150 0.245 0.625 0.156 0.525 0.265 0.025 0.218 0.230 0.217
4 1.024 0.176 0.610 0.138 0.414 0.188 -0.062 0.177 -0.018 0.170
Low 1.025 0.194 0.730 0.173 0.296 0.215 -0.029 0.167 0.070 0.150
Panel E. 3-mon h momen um
b
i;m s.e. b
i;CF s.e.:b
i;DR s.e. b
i;HML s.e. b
i;SMB s.e.
Winne s 1.338 0.348 0.699 0.151 0.639 0.340 0.299 0.224 0.539 0.261
2 1.081 0.288 0.526 0.111 0.555 0.294 0.214 0.224 0.385 0.245
3 1.324 0.328 0.678 0.152 0.646 0.315 0.251 0.247 0.432 0.200
4 1.213 0.236 0.518 0.166 0.696 0.253 0.040 0.301 0.241 0.193
Lose s 1.101 0.248 0.424 0.163 0.677 0.249 -0.159 0.341 0.077 0.176
19

Table 5. C oss-sec ional Asse P icing Tes s
CAPM Two-Be a CF DR Fama-F ench All
0
0:005
(0:0048)
0:0139
(0:0062)
0:0107
(0:0065)
0:0026
(0:0031)
0:0088
(0:0072)
0:0025
(0:0070)
m
0:0115
(0:0038)
0:0015
(0:0064)
CF
0:0274
(0:0093)
0:0320
(0:0113)
0:0166
(0:0076)
DR
0:0096
(0:0043)
0:0107
(0:0051)
0:0132
(0:0082)
HML
0:0066
(0:0036)
0:0051
(0:0032)
SMB
0:0098
(0:0044)
0:0159
(0:0054)
adj.-R242:2% 46:6% 21:5% 30:4% 48:5% 62:6%
2:8572
(0:1612)
0:0096
(0:0043)
20
0 0,005 0,01 0,015 0,02 0,025 0,03
0
0,005
0,01
0,015
0,02
0,025
0,03
Realized A e age Re u ns
Fi ed A e age Re u ns
Figu e 1. Fi ed s. Realized A e age Re u ns: CAPM
0 0,005 0,01 0,015 0,02 0,025 0,03
0
0,005
0,01
0,015
0,02
0,025
0,03
Realized A e age Re u ns
Fi ed A e age Re u ns
Figu e 2. Fi ed s. Realized A e age Re u ns: Un es ic ed Two-Be a ICAPM
0 0,005 0,01 0,015 0,02 0,025 0,03
0
0,005
0,01
0,015
0,02
0,025
0,03
Realized A e age Re u ns
Fi ed A e age Re u ns
Figu e 3. Fi ed s. Realized A e age Re u ns: Res ic ed Two-Be a ICAPM