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Has The Cross-Section of Average Returns Always Been the Same? Evidence from Germany, 1881-1913

Bossaerts, Peter and Fohlin, Caroline (2000) Has The Cross-Section of Average Returns Always Been the Same? Evidence from Germany, 1881-1913. Social Science Working Paper, 1084. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20170808-155743909

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Abstract

The cross-section of average annual returns on German common stock in the period of 1881-1913 exhibits several of the patterns that have been observed in more recent U.S. data. Market beta is hardly important, and its explanatory power is swamped by size and the ratio of book value to market value. A book-to-market risk measure (covariance with a portfolio long in high book-to-market firms and short in low book-to-market firms) has no effect on the explanatory power of the book-to-market characteristic. But the size effect appears to be caused by selection bias in the sample. And the book-to-market effect is opposite that of the recent U.S. experience (and, hence, can certainly not be attributed to selection bias). Finally, a momentum portfolio constructed on the basis of the error of the basic 3-characteristic model (market beta, size and book-to-market) does not generate significant returns. These findings highlight the variability in the power of certain characteristics in explaining the cross section of average returns.


Item Type:Report or Paper (Working Paper)
Related URLs:
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=259282SSRNUNSPECIFIED
ORCID:
AuthorORCID
Bossaerts, Peter0000-0003-2308-2603
Fohlin, Caroline0000-0002-1380-2788
Additional Information:The financial support of the National Science Foundation and the California Institute of Technology is gratefully acknowledged.
Group:Social Science Working Papers
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Funding AgencyGrant Number
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CaltechUNSPECIFIED
Subject Keywords:Common stock returns, beta, momentum portfolio, selection bias
Series Name:Social Science Working Paper
Issue or Number:1084
Classification Code:JEL: G1, N2
Record Number:CaltechAUTHORS:20170808-155743909
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20170808-155743909
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79977
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:09 Aug 2017 16:58
Last Modified:03 Oct 2019 18:26

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