Long-Run Cash-Flow and Discount-Rate Risks in the Cross-Section of US Returns

Ekaterini Panopoulou, Michail Koubouros and Dimitrios Malliaropulos

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: This paper decomposes the overall market (CAPM) risk into parts re.ecting uncertainty related to the long-run dynamics of portfolio-speci.c and market cash .ows and discount rates. We decompose market betas into four sub-betas (as- sociated with assets.and market.s cash .ows and discount rates) and we employ a discrete time version of the I-CAPM to derive a four-beta model. The model performs well in pricing average returns on single- and double-sorted portfolios ac- cording to size, book-to-market, dividend-price ratios and past risk, by producing high estimates for the explained cross-sectional variation in average returns and economically and statistically acceptable estimates for the coe¢ cient of relative risk aversion.

Keywords: CAPM; cash-.ow risk; discount-rate risk; VAR-GARCH; BEKK; asset pricing (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-05
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Long-run cash flow and discount-rate risks in the cross-section of US returns (2010)
Working Paper: Long-Run Cash-Flow and Discount-Rate Risks in the Cross-Section of US Returns (2006)
Working Paper: Long-Run Cash-Flow and Discount-Rate Risks in the Cross-Section of US Returns (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n1580505

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