NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Expected Returns, Yield Spreads, and Asset Pricing Tests

Murillo Campello, Long Chen, Lu Zhang

NBER Working Paper No. 11323*
Issued in May 2005
NBER Program(s):   AP

We use yield spreads to construct ex-ante returns on corporate securities, and then use the ex-ante returns in asset pricing assets. Differently from the standard approach, our tests do not use ex-post average returns as a proxy for expected returns. We find that the market beta plays a much more important role in the cross-section of expected returns than previously reported. The expected value premium is significantly positive and countercyclical. We find no evidence of ex-ante positive momentum profits.

*Published: Murillo Campello & Long Chen & Lu Zhang, 2008. "Expected returns, yield spreads, and asset pricing tests," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 21(3), pages 1297-1338, May.

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