Common risk factors in the returns on stocks and bonds

Article Abstract:

Five common risk factors concerning stock and bond returns are identified and appear to explain average returns. The time-series regression technique put forward by Black, Jensen and Scholes is used to extend asset-pricing tests of Fama and French. Two bond market factors are identified as TERM, a differential between government bond return and Treasury bill rate; and DEF, a difference factor between long-term corporate bond portfolio return and returns on long-term government bonds. Three factors are characterized for stock market risk: SMB, a factor that takes into account size; HML, a book-to-market factor; and RMO, an orthogonoalized market factor.

Economic aspects, Stocks, Stock-exchange, Stock exchanges, Bonds, Bonds (Securities), Credit market, Credit markets

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Industry costs of equity

Article Abstract:

It is argued that the cost of capital estimates that determine cash flow discounts are inaccurate. The Capital Asset Pricing Model and a three-factor model for estimating industry costs of equity are employed to describe two flaws that undermine cost of equity estimates from any asset pricing model: inaccurate estimates of risk loadings and of factor risk premiums. Standard of errors of over 3% annually are generated in both models.

Models, Prices and rates, Pricing, Capital assets, Capital assets pricing model, Capital asset pricing model, Costs, Industrial, Industrial costs

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Profitability, investment and average returns

Article Abstract:

The corelation between stock returns, expected profitability, expected investment and book-to-market equity is analyzed.

United States, Investments, Equity (Finance), Profitability, Return on assets

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