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Do the common risk factors always capture strong variation in stock returns?

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  • Pradosh Simlai

    (College of Business and Public Administration, University of North Dakota)

Abstract

This paper examines the role of stock market factors in stock returns using the generalised autoregressive conditional heteroskedastic model. We use a time series regression approach where monthly returns on stocks are regressed on the returns to a market portfolio of stocks and mimicking portfolios for size and book-to-market equity. Implications of conditional heteroskedasticity are then documented. We show that accounting for heteroskedasticity increases the evidence that risk-adjusted returns are strongly related to common risk factors.

Suggested Citation

  • Pradosh Simlai, 2008. "Do the common risk factors always capture strong variation in stock returns?," Journal of Asset Management, Palgrave Macmillan, vol. 9(4), pages 255-263, October.
    • Handle: RePEc:pal:assmgt:v:9:y:2008:i:4:d:10.1057_jam.2008.22
    DOI: 10.1057/jam.2008.22
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    Cited by:

    1. Tobias E Anheluk & Pradosh Simlai, 2011. "Information spillovers between size and value premium in average stock returns," Journal of Asset Management, Palgrave Macmillan, vol. 12(6), pages 395-406, December.

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