Abstract:

We propose a novel perspective on asset pricing using factor models. Instead of relying on past stock returns to estimate factors that drive the cross-section of stock returns, we use the implied costs of capital of individual firms to estimate expected factor returns. We thus derive ex-ante measures of the 5 factors as proposed by Fama and French (2015) and analyse whether these factors were priced ex-ante. In addition, we use aggregate equity yields to estimate the market equity yield curve. During the period from 1990 to 2019, we find an upward-sloping term structure of equity risk premia. Together with the concave bond yield curve, the market equity yield curve was upward sloping.

Location:

Room 2E29, CEPS ENS Paris-Saclay
4 avenue des Sciences, 91190, Gif-sur-Yvette