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

Ekaterini Panopoulou (), Michail Koubouros and Dimitrios Malliaropulos ()

Economics, Finance and Accounting Department Working Paper Series from Department of Economics, Finance and Accounting, 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
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Related works:
Journal Article: Long-run cash flow and discount-rate risks in the cross-section of US returns (2010) Downloads
Working Paper: Long-Run Cash-Flow and Discount-Rate Risks in the Cross-Section of US Returns (2006) Downloads
Working Paper: Long-Run Cash-Flow and Discount-Rate Risks in the Cross-Section of US Returns (2006) Downloads
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