Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92948
Authors: 
Bätje, Fabian
Menkhoff, Lukas
Year of Publication: 
2013
Series/Report no.: 
Discussion Paper, Wirtschaftswissenschaftliche Fakultät, Leibniz Universität Hannover 520
Abstract: 
This research uses macro factors to explain four standard U.S. stock market risk premia, i.e. the market excess return (RM-RF), size (SMB), value (HML), and momentum (WML). We find in-sample predictive power of macro factors, in particular at a one-year horizon. Differentiating between bull and bear market states roughly doubles forecast performance compared to neglecting market states. All four stock market risk premia can be explained with R-squares of 10% to 25%. However, macro factors have limited predictive power in a true out-of-sample setting.
Subjects: 
stock market
risk premia
factor analysis
market states
JEL: 
G10
G12
Document Type: 
Working Paper

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