Can An ”Estimation Factor” Help Explain Cross-Sectional Returns?

Frederik Lundtofte ()

No 2005:18, Working Papers from Lund University, Department of Economics

Abstract: We show in a theoretical model that the expected excess return on any asset depends on its covariance not only with the market portfolio, but also with changes in the representative agent’s estimate. In the empirical specification, this ”estimation factor” is based on realized growth in aggregate dividends and earnings. We test our model by using GMM and compare it to the Fama-French model. The results suggest that the estimation factor is priced. Moreover, the Hansen-Jagannathan distances show that the conditional and static versions of our derived model perform on a par with the corresponding versions of the Fama-French model.

Keywords: learning; incomplete information; equilibrium; factor pricing models (search for similar items in EconPapers)
JEL-codes: C13 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-02-24
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Business, Finance and Accounting, 2009, pages 705-724.

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2005_018

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