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Determinants of expected stock returns: Large sample evidence from the German market

Artmann, Sabine
Finter, Philipp
Kempf, Alexander
Year of Publication: 
Series/Report no.: 
CFR working paper 10-01
This paper conducts a comprehensive asset pricing study based on a unique dataset for the German stock market. For the period 1963 to 2006 we show that two value characteristics (book-to-market equity, earnings-to-price) and momentum explain the cross-section of stock returns. Corresponding factor portfolios have significant premiums across various doublesorted characteristic-based test assets. In a horse race of competing asset pricing models the Fama-French 3-factor model does a poor job in explaining average stock returns, whereas the Carhart 4-factor model performs well. However, both models are inferior to a 4-factor model containing an earnings-to-price factor instead of a size factor.
asset pricing
risk factors
multifactor models
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Document Type: 
Working Paper

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