A macroeconomic hedge portfolio and the cross section of stock returns
| Autor: | Olaf Stotz, Maximilian Renz |
|---|---|
| Rok vydání: | 2020 |
| Předmět: |
040101 forestry
Common factor model Economics and Econometrics 050208 finance Risk premium 05 social sciences 04 agricultural and veterinary sciences 0502 economics and business Economics Econometrics 0401 agriculture forestry and fisheries Portfolio Capital asset pricing model Marginal utility Finance Stock (geology) |
| Zdroj: | Review of Financial Economics. 39:73-94 |
| ISSN: | 1873-5924 1058-3300 |
| DOI: | 10.1002/rfe.1106 |
| Popis: | We use a stock's returns on days when important macroeconomic news is released to form a hedge portfolio, which is long (short) in stocks which have a sensitive (insensitive) reaction to the surprise component of the macroeconomic news. This macroeconomic hedge portfolio (MHP) earns a risk premium of about 5% p.a. over time and a similar premium when used as a risk factor in an asset pricing model. This premium can be interpreted as a cost of an insurance against unexpected changes in an investor's marginal utility. We show that risk premiums associated with the MHP are estimated with a higher precision than traditional macroeconomic tracking portfolios. Furthermore, when the MHP is present in a common factor model, risk factors like high minus low lose much of their ability to explain the cross section of stock returns. |
| Databáze: | OpenAIRE |
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