The Cross Section of Expected Returns and Amortized Spreads

Zhongzhi (Lawrence) He () and Lawrence Kryzanowski ()
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Zhongzhi (Lawrence) He: Faculty of Business, Brock University, 500 Glenridge Ave., St. Catharines, ON, Canada, L2S 3A1, Canada
Lawrence Kryzanowski: John Molson School of Business, Concordia University, 1455 De Maisonneuve Blvd. West, Montreal, QC, Canada, H3G 1M8, Canada

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2006, vol. 09, issue 04, 597-638

Abstract: The cross-sectional relationship between expected returns and amortized spreads is studied in an overlapping-generations economy with an average investor. The commonality in liquidity is directly incorporated into the asset-pricing relation. In a static equilibrium, the amortized spread of an asset is related to its expected return through four channels; namely: the equilibrium zero-beta rate, the market risk premium, a level effect, and an incremental sensitivity effect. Although both are present over the entire period, their relative importance shifts from a significant level to a significant sensitivity effect from the earlier to most recent sub-period in the Canadian stock market.

Keywords: Amortized spread; asset pricing; liquidity commonality; clientele effect; share turnover; JEL Classification: G11; JEL Classification: G12 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2006
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091506000872

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