Long-term perspective on the stock market matters in asset pricing

Heungju Park and Bumjean Sohn

Finance Research Letters, 2016, vol. 16, issue C, 162-170

Abstract: We provide a more intuitive interpretation of Campbell's (1993) intertemporal capital asset pricing model. In this model, investors’ long-term perspective on the stock market matters and the revision on the perspective becomes a pricing factor. We construct this factor series from out-of-sample forecasts and it allows us to avoid the perfect foresight problem of the VAR factor model and to deal with on-going debate on the return predictability. Our empirical results suggest that the innovation factor is strongly and robustly priced across assets and has close relationship with the momentum and liquidity factors.

Keywords: ICAPM; Cross-section of equity returns; Long-horizon market return (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G17 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:16:y:2016:i:c:p:162-170

DOI: 10.1016/j.frl.2015.10.022

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