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Can An "Estimation Factor" Help Explain Cross-Sectional Returns?

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Author

  • Frederik Lundtofte

Summary, in English

We show in a theoretical model that the expected excess return on any asset depends on its covariance not only with the market portfolio, but also with changes in the representative agent's estimate. We test our model by using GMM and compare it to the CAPM. The results suggest that adding an "estimation factor" to the CAPM helps in explaining cross-sectional returns and that, unconditionally, this estimation factor carries a negative risk premium.

Publishing year

2009

Language

English

Pages

705-724

Publication/Series

Journal of Business Finance & Accounting

Volume

36

Issue

5-6

Document type

Journal article

Publisher

Wiley-Blackwell

Topic

  • Economics

Keywords

  • equilibrium
  • learning
  • incomplete information
  • asset pricing models

Status

Published

ISBN/ISSN/Other

  • ISSN: 0306-686X