Conditional Asset Pricing and Stock Market Anomalies in Europe

R.M.M.J. Bauer, M.M.J.E. Cosemans, P.C. Schotman

Research output: Contribution to journalArticleAcademicpeer-review

18 Citations (Scopus)

Abstract

This study provides European evidence on the ability of static and dynamic specifications of the Fama-French (1993) three-factor model to price 25 size-B/M portfolios. In contrast to US evidence, we detect a small-growth premium and find that the size effect is still present in Europe. Furthermore, we document strong time variation in factor risk loadings. Incorporating these risk fluctuations in conditional specifications of the three-factor model clearly improves its ability to explain time variation in expected returns. However, the model still fails to completely capture cross-sectional variation in returns as it is unable to explain the momentum effect.

Original languageEnglish
Pages (from-to)165-190
Number of pages26
JournalEuropean Financial Management
Volume16
Issue number2
DOIs
Publication statusPublished - Mar 2010

Keywords

  • conditional asset pricing
  • time-varying risk
  • stock market anomalies
  • G12
  • G14
  • CROSS-SECTION
  • EXPECTED RETURNS
  • BUSINESS-CYCLE
  • COMMON-STOCKS
  • VALUE PREMIUM
  • MOMENTUM
  • MODELS
  • RISK
  • CAPM
  • EFFICIENCY

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