Calendar Cycles, Infrequent Decisions, and the Cross Section of Stock Returns

Ravi Jagannathan, Srikant Marakani (), Hitoshi Takehara () and Yong Wang ()
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Srikant Marakani: Department of Economics and Finance, City University of Hong Kong, Kowloon, Hong Kong
Hitoshi Takehara: Graduate School of Finance, Accounting and Law, Waseda University, Tokyo 169-8050, Japan
Yong Wang: School of Accounting and Finance, Hong Kong Polytechnic University, Kowloon, Hong Kong

Management Science, 2012, vol. 58, issue 3, 507-522

Abstract: We show that when investors review their consumption and investment plans infrequently at different points in time with interim information flows, the standard consumption-based capital asset pricing model (CCAPM) will continue to hold only at those points in time when all investors review their plans. Stylized facts suggest that the end of the tax year is a candidate for one such points in time. Therefore, we should expect more support for the CCAPM during the period surrounding the end of the tax year, i.e., the fourth and first quarters in Japan where the tax year ends in December, and the first and second quarters in the United Kingdom where the tax year ends in April. Our empirical findings are consistent with these expectations. This paper was accepted by Wei Xiong, finance.

Keywords: CCAPM; Japanese stock market; UK stock market; cross section of stock returns; infrequent decisions; deterministic cycles; calendar cycles (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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