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SUMMARY:Expected Returns and Risk in the Stock Market - Michael Brennan is
  a professor of finance at the University of Manchester\, having previousl
 y held this position at UCLA and London Business School.
DTSTART:20171123T130000Z
DTEND:20171123T140000Z
UID:TALK71677@talks.cam.ac.uk
CONTACT:CERF/CF Admin
DESCRIPTION:In this paper we present new evidence on the predictability of
  stock returns\, and examine the extent to which time variation in expecte
 d returns on the market portfolio and other portfolios is due to time vari
 ation in the risk exposure of these portfolios or due simply to mispricing
  or sentiment.\n\nIn doing this we develop two new models for the predicti
 on of stock market returns\, one risk-based\, and the other purely statist
 ical\; both models rely on extracting information from past returns of por
 tfolios. The pricing kernel model expresses the expected excess return as 
 the covariance of the market return with a pricing kernel that is a linear
  function of portfolio returns.\n\nThe discount rate model is based on the
  log-linea present value model od Campbell and Shiller and predicts the ex
 pected excess return directly as a function of weighted past portfolio ret
 urns. For aggregate market returns the two models provide independent evid
 ence of predictable variation in returns\, with R2 of 5-8% for quarterly r
 eturns  and 8-17% for annual return. For spread portfolio returns\, such a
 s HMZ and HML\, the story is different and we find considerable evidence o
 f predictability from the discount rate model that is not captured by the 
 risk based model \, and the expected returns on these spread portfolios ar
 e found to be strongly related to measures of sentiment.
LOCATION:Room W4.03 Cambridge Judge Business School
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