International Market Risk and Cross-section of Greek Average Returns
Panopoulou, Dr. Ekaterini and Koubouros, Michail (2006) International Market Risk and Cross-section of Greek Average Returns. .
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This paper examines wheather the overall market risk along with risks reflecting uncertanty 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 tpyes of risk provide an empricical improvement over the static CAPM and if cash -flow risk is more inportant than discount-rate risk, as a rationall-CAPM risk story would perdict. Our results suggest that the two-beta intertemporal model performs at least as well as the Fama-French (Journal of Financial Economics, 1993) three factor 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 relative risk averation. More importantly, dispite the relative importance of market discount-rate risk, it is market dividend-growth risk that turns out to be for more inportant in determing average returns on Greek protfolios.
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