Intertemporal Market Risk and Cross-section of Greek Average Returns
Panopoulou, Dr. Ekaterini and Koubouros, Michail (2005) Intertemporal Market Risk and Cross-section of Greek Average Returns. .
This paper examines wheather tohe overall market risk along with risks reflecting uncertainty related to the long run dynamic of market cash flows (dividends) and discount rates (returns) price average returns on single-sorted portfolios of the Greek stock market. Following Campbell and Vuolteenaho (American Economic Review, 2004) we check wheather these two types of risk provide an empricalimprovement over the static CAPM and if cash-flow risk is more important than discount-rate risk, as a rationalI-CAPM risk story would perdict. Our results suggest that the two-beta intertemporal model performs at least as well as the Fama-French (Jourlan of Financial Economics, 1993) threefactor model since it explains half of the cross-sectional variation in average returns and delivers an economically and statistically acceptable estimate of the coefficient of relatiave risk averation. More inportantly, dispite the relative importance of market discount-rate risk, it is market dividend-growth risk that turns out to be for more important in determing aveage returns on Greek protfolios.
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