Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2021-07-04
Number: 21-062/III
Author-Name: Terri van der Zwan
Author-Workplace-Name: Erasmus University Rotterdam
Author-Name: Erik Hennink
Author-Workplace-Name: Ortec Finance
Author-Name: Patrick Tuijp
Author-Workplace-Name: Ortec Finance
Title: Equity Risk Factors for the Long and Short Run: Pricing and Performance at Different Frequencies
Abstract: We find that the outperformance for Fama-French factors compared to macroeconomic factors in terms of fitting the cross-section of expected returns disappears when accounting for horizon effects. In addition, we obtain novel empirical relations between macroeconomic factors and Fama-French factors at longer horizons. To obtain our results, we introduce a general linear multifactor asset pricing methodology that integrates systematic risk measured at different frequencies into a single pricing equation. Our setup allows for a setting where investors with different investment horizons may experience different levels of systematic risk, which could arise from delayed stock price reaction to systematic factor news.
Classification-JEL: G12, C58, G11
Keywords: Cross-Section of Stock Returns, Factors, Frequency Decomposition, Horizon Effects, Investment Horizon
File-URL: https://papers.tinbergen.nl/21062.pdf
File-Format: application/pdf
File-Size: 1640510 bytes
Handle: RePEc:tin:wpaper:20210000