Conditioning Variables and the Cross Section of Stock Returns

1999/08/01 by Wayne E. Ferson, Campbell R. Harvey · 892 citations
Economics, Econometrics and Finance · Engineering · #Bond #Econometrics #Economics #Engineering #Explanatory power #Finance #Financial Markets and Investment Strategies #Financial Risk and Volatility Modeling #Financial economics #Monetary Policy and Economic Impact #Portfolio #Stock (firearms)

paper · pdf · doi:10.1111/0022-1082.00148

published in The Journal of Finance 54(4), 1325-1360 (Wiley)

openalex publication_date 1999/08/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29

Abstract

Previous studies identify predetermined variables that predict stock and bond returns through time. This paper shows that loadings on the same variables provide significant cross‐sectional explanatory power for stock portfolio returns. The loadings are significant given the three factors advocated by Fama and French (1993) and the four factors of Elton, Gruber, and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The results carry implications for risk analysis, performance measurement, cost‐of‐capital calculations, and other applications.

Citations

• Economic Forces and the Stock Market
• Econometric Issues in the Analysis of Regressions with Generated Regressors
• Capital Market Equilibrium with Restricted Borrowing
• Risk, Return, and Equilibrium: Empirical Tests
• A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity
• Two‐Pass Tests of Asset Pricing Models with Useless Factors
• Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
• An Intertemporal Capital Asset Pricing Model
• Evidence on the Characteristics of Cross Sectional Variation in Stock Returns

Cited by

• Corporate Investment and Asset Price Dynamics: Implications for the Cross‐section of Returns
• Empirical Asset Pricing via Machine Learning
• The Value of Investor Sophistication
• Uniform Inference for Characteristic Effects of Large Continuous-Time Linear Models
• Hierarchical causality in financial economics
• Does Mutual Fund Performance Vary over the Business Cycle?

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