What is the expected return on a stock?
Ian Martin and
Christian Wagner
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
Abstract:
We derive a formula for the expected return on a stock in terms of the risk-neutral variance of the market and the stock's excess risk-neutral variance relative to that of the average stock. These quantities can be computed from index and stock option prices; the formula has no free parameters. The theory performs well empirically both in and out of sample. Our results suggest that there is considerably more variation in expected returns, over time and across stocks, than has previously been acknowledged.
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2019-08-01
New Economics Papers: this item is included in nep-cwa and nep-rmg
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Citations: View citations in EconPapers (41)
Published in Journal of Finance, 1, August, 2019, 74(4), pp. 1887-1929. ISSN: 0022-1082
Downloads: (external link)
http://eprints.lse.ac.uk/90158/ Open access version. (application/pdf)
Related works:
Journal Article: What Is the Expected Return on a Stock? (2019)
Working Paper: What Is the Expected Return on a Stock? (2017)
Working Paper: What is the Expected Return on a Stock? (2016)
Working Paper: What is the expected return on a stock? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:90158
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