Conditioning information and cross-sectional anomalies

Conditioning information and cross-sectional anomalies Recent empirical work suggests that predictability of future returns is related to a time-varying component that expected returns exhibit. In this paper, I use conditional asset pricing models to investigate whether return anomalies exhibit common dynamic patterns in returns. The prediction of a model might hinge on the specific interaction between its underlying state variables and considered portfolios. Using well known anomalies and alternative state variables I study such interaction. I document that different state variables identify similar time-varying behavior for the anomalies in extreme economic conditions, but such anomalies show no commonalities in their overall patterns. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Conditioning information and cross-sectional anomalies

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Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-013-0384-6
Publisher site
See Article on Publisher Site

Abstract

Recent empirical work suggests that predictability of future returns is related to a time-varying component that expected returns exhibit. In this paper, I use conditional asset pricing models to investigate whether return anomalies exhibit common dynamic patterns in returns. The prediction of a model might hinge on the specific interaction between its underlying state variables and considered portfolios. Using well known anomalies and alternative state variables I study such interaction. I document that different state variables identify similar time-varying behavior for the anomalies in extreme economic conditions, but such anomalies show no commonalities in their overall patterns.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jun 18, 2013

References

  • Basis assets
    Ahn, D; Conrad, J; Dittmar, R
  • Asset pricing models and financial markets
    Avramov, D; Chordia, T
  • Consumption, dividends, and the cross section of equity returns
    Bansal, R; Dittmar, R; Lundblad, C
  • Investment performance of common stocks in relation to their price earnings ratios: a test of efficient market hypothesis
    Basu, S
  • Conditional risk and performance evaluation: volatility timing, overconditioning, and new estimates of momentum alphas
    Boguth, O; Carlson, M; Fisher, A; Simutin, M
  • Implementing statistical criteria to select return forecasting models: what do we learn?
    Bossaerts, P; Hillion, P
  • Good news, bad news, volatility and betas
    Braun, P; Nelson, D; Sunier, A
  • Assessing asset pricing anomalies
    Brennan, MJ; Xia, Y
  • A variance decomposition for stock returns
    Campbell, JY
  • Bad beta, good beta
    Campbell, JY; Vuolteenaho, T
  • Conditioning manager alphas on economic information: another look at the persistence of performance
    Christopherson, J; Ferson, WE; Glassman, DA

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