TY - JOUR

T1 - Equilibrium asset pricing and the cross section of expected returns

AU - Vanden, Joel M.

N1 - Publisher Copyright:
© 2021, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.

PY - 2021/6

Y1 - 2021/6

N2 - In a mean-variance framework with a representative agent, any linear model for the cross section of expected returns can be supported as an equilibrium as long as the market portfolio is spanned by the factor mimicking portfolios. Any set of factors is admissible as long as the spanning condition is satisfied. Factors based on size, book-to-market, momentum, investment, profitability, behavioral biases, principal components, or any combination of these can be used as equilibrium factors. An equilibrium model with M risk factors can be reduced to a collection of M models where each model has a single risk factor, which is covariance with the market portfolio.

AB - In a mean-variance framework with a representative agent, any linear model for the cross section of expected returns can be supported as an equilibrium as long as the market portfolio is spanned by the factor mimicking portfolios. Any set of factors is admissible as long as the spanning condition is satisfied. Factors based on size, book-to-market, momentum, investment, profitability, behavioral biases, principal components, or any combination of these can be used as equilibrium factors. An equilibrium model with M risk factors can be reduced to a collection of M models where each model has a single risk factor, which is covariance with the market portfolio.

UR - http://www.scopus.com/inward/record.url?scp=85103226283&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85103226283&partnerID=8YFLogxK

U2 - 10.1007/s10436-021-00383-7

DO - 10.1007/s10436-021-00383-7

M3 - Article

AN - SCOPUS:85103226283

VL - 17

SP - 153

EP - 186

JO - Annals of Finance

JF - Annals of Finance

SN - 1614-2446

IS - 2

ER -