The risk–return tradeoff among equity factors

Barroso, Pedro; Maio, Paulo

http://hdl.handle.net/10400.14/46602

Use this identifier to reference this record.

Name:	Description:	Size:	Format:
105170538.pdf		609.25 KB	Adobe PDF	Download

Send Feedback

Authors

Barroso, Pedro

Maio, Paulo

Abstract(s)

We examine the time-series risk–return tradeoff among equity factors. We obtain a positive tradeoff for profitability and investment factors, which is consistent with the APT. Such relationship subsists when we control by the covariance with the market factor, which represents consistency with Merton's ICAPM. Critically, we obtain an insignificant risk–return relationship for the market and other factors. The tradeoff is weaker among international equity markets. The out-of-sample forecasting power tends to be economically significant for the investment and profitability factors. Our results suggest that the risk–return tradeoff is stronger within segments of the stock market than for the whole.