What Drives Stock Return Commonalities? Evidence from France and the USA Using a Cross - Sectional Approach

Jean-Jacques Lilti () and Gulten Mero
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Jean-Jacques Lilti: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Gulten Mero: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper, we use a cross-sectional approach to get a deeper comprehension of the common risk profile of stock returns. Instead of employing static and ad hoc factor selection procedures as in Fama and French (1993), we use asymptotic developments of Bai and Ng (2002, 2006) to select the relevant factors. We thus reconcile two methodologies: a statistical one and the other, founded on observed factors. We apply our approach to French and US stock markets over the period 1999 to 2008 and test the performance of several traditionally observed factors, such as credit spread and firm-characteristic variables of Fama and French (1993) and Carhart (1997). Our results uncover strong time and country dependencies of stock risk profile.

Keywords: Factor Models; Asymptotic Tests; Relevant Factors; Time-Varying Risk Profile; Time-Varying Risk Profile. (search for similar items in EconPapers)
Date: 2013
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Published in Bankers Markets & Investors : an academic & professional review, 2013, 126, pp.5-13

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00864697

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