Intertemporal Capital Asset Pricing and the Fama-French Three-Factor Model

Brennan, Michael J.; Wang, Ashley W.; Xia, Yihong

doi:10.2139/ssrn.279385

Cited by 34 publications

(20 citation statements)

References 34 publications

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“…The first row of Table 2 shows that only small-value stock spread (VS) in our VAR state variables significantly predicts excess market return. The smallstock value spread negatively predicts the return, consistent with Eleswarapu and Reinganum (2004) and Brennan et al (2001). Overall, the adjusted R 2 of the return forecasting equation is about 1.2%, which is similar to Campbell and Vuolteenaho (2004) and a reasonable number for a quarterly model.…”

Section: Resultssupporting

confidence: 63%

Aggregate insider trading: Contrarian beliefs or superior information?

Jiang

Zaman

2010

Journal of Banking & Finance

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Section: Resultssupporting

confidence: 63%

Aggregate insider trading: Contrarian beliefs or superior information?

Jiang

Zaman

2010

Journal of Banking & Finance

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“…Another possibility is that SMB and HML are capturing the effects of other state variables unrelated to relative leverage and distress. Brennan, Wang, and Xia (2002), for example, develop an intertemporal CAPM with mean‐reverting state variables, and show that the prices of the portfolios used to form SMB and HML incorporate information about the changing investment opportunity set, so the loadings on SMB and HML could measure sensitivities to the state variables.…”

Section: Empirical Analysismentioning

confidence: 99%

Equilibrium “Anomalies”

Ferguson¹,

Shockley²

2003

The Journal of Finance

149

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Many empirical “anomalies” are actually consistent with the single beta capital asset pricing model if the empiricist utilizes an equity‐only proxy for the true market portfolio. Equity betas estimated against this particular inefficient proxy will be understated, with the error increasing with the firm's leverage. Thus, firm‐specific variables that correlate with leverage (such as book‐to‐market and size) will appear to explain returns after controlling for proxy beta simply because they capture the missing beta risk. Loadings on portfolios formed on relative leverage and relative distress completely subsume the powers of the Fama and French (1993) returns to small minus big market capitalization (SMB) portfolios and returns to high minus low book‐to‐market (HML) portfolios factors in explaining cross‐sectional returns.

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“…The recent success of this model in pricing U.S. equities and the finding by Brennan, Wang, and Xia (2001) that the factors are correlated with investors' investment opportunity set lead us to believe that they may price returns on foreign currency deposits.…”

Section: Methodsmentioning

confidence: 99%