A Life Cycles Explanation of Market Index Risk

Résumé du livre

Recent research has generated renewed interest in the relation between accounting information and stock returns. Ou and Penman (1989) develop a trading strategy based on financial statement analysis. Fama and French (1992) conclude that firm size and book-to-market equity explain variability in stock returns, although Kothari, Shanken and Sloan (1995) question those results. We identify economic factors underlying cross-sectional variation in market risk. Ultimately, profitability and stock returns are driven by the underlying economics of a firm's production function, investment opportunity set and risk. We document that differences in quot;life cycle stagequot; (Anthony and Ramesh (1992)) explain up to 14% of cross- sectional variation in market index coefficients. Life cycle stage indicator variables capture differences in output market structure and differences in investment opportunity sets -- specifically the ratio of growth options to assets- in-place.