Expected Returns and Volatility of Fama-French Factors

Chabi-Yo, Fousseni
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Chabi-Yo, Fousseni: Ohio State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: In this paper, I show that the variance of Fama-French factors, the variance of the momentum factor, as well as the correlation between these factors, predict an important fraction of the time- series variation in post-1990 aggregate stock market returns. This predictability is particularly strong from one month to one year, and it dominates that afforded by the variance risk premium and other popular predictor variables such as P/D ratio, the P/E ratio, the default spread, and the consumption-wealth ratio. In a simple representative agent economy with recursive preferences, I model the portfolio weight in each asset as a function of a stock's characteristics and show that the market return can be predicted by these variances.

JEL-codes: C22 C51 C52 G12 G13 G14 (search for similar items in EconPapers)
Date: 2009-09

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http://www.cob.ohio-state.edu/fin/dice/papers/2009/2009-17.pdf

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Persistent link: http://EconPapers.repec.org/RePEc:ecl:ohidic:2009-17

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