Evidence on the Characteristics of Cross Sectional Variation in Stock Returns

1997/03/01 by KENT DANIEL, Kent Daniel, Sheridan Titman +1 · 1,739 citations
Business, Management and Accounting · Economics, Econometrics and Finance · Mathematics · #Capital asset pricing model #Capitalization #Common stock #Contrast (vision) #Corporate Finance and Governance #Covariance #Econometrics #Economics #Financial Markets and Investment Strategies #Financial economics #Geography #Housing Market and Economics #Market capitalization #Mathematics #Statistics #Stock (firearms) #Stock market #Variation (astronomy)

paper · doi:10.1111/j.1540-6261.1997.tb03806.x

published in The Journal of Finance 52(1), 1-33 (Wiley)

openalex publication_date 1997/03/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/31

Abstract

ABSTRACT Firm sizes and book‐to‐market ratios are both highly correlated with the average returns of common stocks. Fama and French (1993) argue that the association between these characteristics and returns arise because the characteristics are proxies for nondiversifiable factor risk. In contrast, the evidence in this article indicates that the return premia on small capitalization and high book‐to‐market stocks does not arise because of the comovements of these stocks with pervasive factors. It is the characteristics rather than the covariance structure of returns that appear to explain the cross‐sectional variation in stock returns.

Citations

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