Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns

John Y. Campbell (), Christopher Polk and Tuomo Vuolteenaho

No 11389, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices (driven by movements in the equity risk premium), while the cash flows of value stocks are particularly sensitive to permanent movements in aggregate stock prices (driven by market-wide shocks to cash flows.) Thus the high betas of growth stocks with the market's discount-rate shocks, and of value stocks with the market's cash-flow shocks, are determined by the cash-flow fundamentals of growth and value companies. Growth stocks are not merely "glamour stocks" whose systematic risks are purely driven by investor sentiment. More generally, accounting measures of firm-level risk have predictive power for firms' betas with market-wide cash flows, and this predictive power arises from the behavior of firms' cash flows. The systematic risks of stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals.

JEL-codes: G12 G14 N22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-fin and nep-rmg
Date: Written 2005-06
Note: AP
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w11389.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w11389
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().