Evidence on the Characteristics of Cross Sectional Variation in Stock Returns

Kent Daniel and Sheridan Titman

No 5604, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firm size and book-to-market ratios are both highly correlated with the returns of common stocks. Fama and French (1993) have argued that the association between these firm characteristics and their stock returns arises because size and book-to-market ratios are proxies for non-diversifiable factor risk. In contrast, the evidence in this paper indicates that the return premia on small capitalization and high book-to-market stocks does not arise because of the co-movements of these stocks with pervasive factors. It is the firm characteristics and not the covariance structure of returns that explain the cross-sectional variation in stock returns.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 1996-06
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Journal of Finance, March 1997.

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Journal Article: Evidence on the Characteristics of Cross Sectional Variation in Stock Returns (1997)
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