Evaluating firm-level expected-return proxies
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Author
Contributions
- Wang, Charles C.Y, author - Contributor
- So, Eric C., author - Contributor
- Harvard Business School - Contributor
Publication
2014 - Harvard Business School, Boston, Massachusetts
Language
English
Word Count
10,750 words, Guess
Page Count
43 pages
Identifiers
- OCLC Control Number893107652
- Open LibraryOL43505023M
Description
We develop and implement a rigorous analytical framework for empirically evaluating the relative performance of firm-level expected-return proxies (ERPs). We show that superior proxies should closely track true expected returns both cross-sectionally and over time (that is, the proxies should exhibit lower measurement-error variances). We then compare five classes of ERPs nominated in recent studies to demonstrate how researchers can easily implement our two-dimensional evaluative framework. Our empirical analyses document a tradeoff between time-series and cross-sectional ERP performance, indicating the optimal choice of proxy may vary across research settings. Our results illustrate how researchers can use our framework to critically evaluate and compare a growing body of ERPs.
Subjects
Series Statement
- Working paper / Harvard Business School -- 15-022
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