Cash-flow Risk,Discount-rate Risk,and Market Premium
We examine the intertemporal risk-return relation by proposing risk-return dynamics that break the conditional variance of the market return into components associated with cash flow news and discount rate news. Because a return shock due to cash flow news has a long-lasting wealth impact relative to one due to discount rate news,a long-term investor is more averse to risk associated with cash flows than to risk associated with discount rates. Consequently,cash flow risk should play a dominant role in the intertemporal risk-return relation. Recognizing this di?erence,our model helps identify a positive risk-return trade-o? associated with cash flow news. In contrast,the risk-return relation associated with discount rate news is negligible and,if anything,negative. There is also a positive relation between the market premium and the covariance of cash flow news with discount rate news,which reflects the ICAPMs hedge component. Further,we find that earlier studies (e.g.,Campbell (1987),Glosten,et al. (1993),and Whitelaw (1994)) fail to identify a positive risk-return relation mainly because their return dynamics fail to distinguish between the different risk components.
Michael W.Brandt Xing Jin Leping Wang
Fuqua School of Business,Durham,NC 27708,USA The Warwick Business School,Coventry,CV4 7AL,UK Lee Kong Chian School of Business,Singapore 178899
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）