This article examines whether the overall market risk, along with risks reflecting uncertainty related to the long–run dynamics of market cash flows (dividends) and discount rates (returns), price average returns on single–sorted portfolios in the Greek stock market. Our results suggest that a two–beta intertemporal capital asset pricing model explains half of the cross–sectional variation in average returns and delivers an economically and statistically acceptable estimate of the coefficient of relative risk aversion. Despite the relative importance of market discount–rate risk, it is market dividend–growth risk that turns out to be far more significant in determining average returns on Greek portfolios.
Brennan, M. , A. Wang and Y. Xia (2004), ‘ Estimation and Test of a Simple Model of Inter–temporal Asset Pricing ’, Journal of Finance, 59: 1743–75 .
2.
Campbell, J.Y. (1991), ‘ A Variance Decomposition of Stock Returns ’, Economic Journal, 101 (405): 157–59 .
3.
Campbell, J.Y. (1993), ‘ Intertemporal Asset Pricing without Consumption Data ’, American Economic Review, 83: 487–512 .
4.
Campbell, J.Y. (1996), ‘ Understanding Risk and Return ’, Journal of Political Economy, 104 (2): 298–345 .
5.
Campbell, J.Y. and J. Mei (1993), ‘ Where Do Betas Come From? Asset Pricing Dynamics and the Sources of Systematic Risk ’, Review of Financial Studies, 6 (3): 567–92 .
6.
Campbell, J.Y. , C. Polk and T. Vuolteenaho (2005), ‘Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns’, NBER Working Paper No. 11389.
7.
Campbell, J.Y. and R. Shiller (1998a), ‘ The Divident–Price Ratio and Expectations About Future Dividends and Discount Factors ’, Review of Financial Studies, 1 (3): 195–228 .
8.
Campbell, J.Y. and R. Shiller (1988b), ‘ Stock Prices, Earnings and Expected Dividends ’, Journal of Finance, 43 (3): 661–76 .
9.
Campbell, J.Y. and R. Shiller (1998), ‘ Valuation Ratios and the Long–Run Stock Market Outlook ’, Journal of Portfolio Management, 24 (2): 11–26 .
10.
Campbell, J.Y. and T. Vuolteenaho (2004), ‘ Bad Beta, Good Beta ’, American Economic Review, 94 (5): 1249–75 .
11.
Chow, G.C. (1960), ‘ Tests of Equality between Sets of Coefficients in Two Linear Regressions ’, Econometrica, 28 (3): 591–605 .
Dicky, D.A. and W.A. Fuller (1979), ‘ Distribution of the Estimators for Autoregressive Time Series with a Unit Root ’, Journal of the American Statistical Association, 74 (366): 427–31 .
14.
Dimson, E. (1979), ‘ Risk Measurement When Shares are Subject to Infrequent Trading ’, Journal of Financial Economics, 7 (2): 197–226 .
15.
Dimson, E. , S. Nagel and G. Quigley (2003), ‘ Capturing the Value Premium in the U.K. 1955–2001 ’, Financial Analysts Journal, 59 (6): 35–45 .
16.
Eleswarapu, V. and M. Reinganum (2004), ‘ The Predictability of Aggregate Stock Market Returns: Evidence Based on Glamour Stocks ’, Journal of Business, 77 (2): 275–94 .
17.
Elliot, G. , T.J. Rothenberg and J.H. Stock (1996), ‘ Efficient Tests for an Autoregressive Unit Root ’, Econometrica, 64 (4): 813–36 .
18.
Epstein, L. and S. Zin (1989), ‘ Substitution, Risk Aversion and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework ’, Econometrica, 57 (4): 937–69 .
19.
Epstein, L. and S. Zin (1991), ‘ Substitution, Risk Aversion and the Temporal Behavior of Consumption and Asset Returns: An Empirical Investigation ’, Journal of Political Economy, 99 (2): 263–86 .
20.
Fama, E.F. and K.R. French (1998), ‘ Dividend Yields and Expected Stock Returns ’, Journal of Financial Economics, 22 (1): 3–27 .
21.
Fama, E.F. and K.R. French (1989), ‘ Business Conditions and Expected Returns on Stocks and Bonds ’, Journal of Financial Economics, 25 (1): 23–49 .
22.
Fama, E.F. and K.R. French (1992), ‘ The Cross–Section of Expected Stock Returns ’, Journal of Finance, 47 (2): 427–65 .
23.
Fama, E.F. and K.R. French (1993), ‘ Common Risk Factors in the Returns on Stocks and Bonds ’, Journal of Financial Economics, 33 (1): 3–56 .
24.
Fama, E.F. and K.R. French (2004), ‘ The Capital Asset Pricing Model: Theory and Evidence ’, Journal of Economic Perspectives, 18 (3): 25–46 .
25.
Hansen, L.P. and K.J. Singleton (1983), ‘ Stochastic Consumption, Risk Aversion and the Temporal Behavior of Asset Returns ’, Journal of Political Economy, 91 (2): 249–68 .
26.
Koubouros, M. , D. Malliaropulos and E. Panopoulou (2005), ‘Long–Run Cash–Flow and Discount–Rate Risks in the Cross–Section of US Returns’, National University of Ireland, Maynooth , Working Paper No. 1580505.
27.
Kwiatkowski, D. , P.C.B. Phillips , P. Schmidt and Y. Shin (1992), ‘ Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have a Unit Root? ’, Journal of Econometrics, 54(1–3): 159–78 .
28.
Lintner, J. (1965), ‘ The Valuation of Risky Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets ’, Review of Economics and Statistics, 47 (2): 13–37 .
29.
Liu, N. and L. Zhangy (2005), ‘The Value Spread as a Predictor of Returns’, NBER Working Paper No. 11326.
30.
McQueen, G. , M. Pinegar and St. Thorley (1996), ‘ Delayed Reaction to Good News and the Cross–Autocorrelation of Portfolio Returns ’, Journal of Finance, 51 (3): 889–919 .
31.
Mehra, R. and E. Prescott (1985), ‘ The Equity Premium: A Puzzle ’, Journal of Monetary Economics, 15 (2): 145–61 .
32.
Merton, R. (1973), ‘ An Intertemporal Capital Asset Pricing Model ’, Econometrica, 41 (5): 867–87 .
33.
Peterson, J. and G. Sanger (1995), ‘Cross–Autocorrelations, Systematic Risk and the Period of Listing’, University of Notre Dame: Unpublished Paper.
34.
Phillips, P.C.B. and P. Perron (1988), ‘ Testing for a Unit Root in Time Series Regression ’, Biometrika, 75 (2): 335–46 .
35.
Phylaktis, K. and F. Ravazzolo (2002), ‘ Measuring Financial and Economic Integration with Equity Prices in Emerging Markets ’, Journal of International Money and Finance, 21 (6): 879–903 .
36.
Rozeff, M. (1984), ‘ Dividend Yields and Equity Risk Premiums ’, Journal of Portfolio Management, 10 (4): 68–75 .
37.
Scholes, M. and J. Williams (1977), ‘ Estimating Betas from Nonsynchronous Data ’, Journal of Financial Economics, 5 (3): 309–27 .
38.
Sharp, W. (1964), ‘ Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk ’, Journal of Finance, 19 (3): 425–42 .
39.
Weil, P. (1989), ‘ The Equity Premium Puzzle and the Riskfree Rate Puzzle ’, Journal of Monetary Economics, 24 (3): 401–21 .
