What is the expected return on a stock?

Martin, Ian ORCID: 0000-0001-8373-5317 and Wagner, Christian (2019) What is the expected return on a stock? Journal of Finance, 74 (4). pp. 1887-1929. ISSN 0022-1082

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Abstract

We derive a formula for the expected return on a stock in terms of the risk-neutral variance of the market and the stock's excess risk-neutral variance relative to that of the average stock. These quantities can be computed from index and stock option prices; the formula has no free parameters. The theory performs well empirically both in and out of sample. Our results suggest that there is considerably more variation in expected returns, over time and across stocks, than has previously been acknowledged.

Item Type:	Article
Additional Information:	© 2019 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
Date Deposited:	29 Aug 2018 15:06
Last Modified:	10 Nov 2024 01:06
Projects:	639744, DNRF102
Funders:	Paul Woolley Centre, Economic Research Council, Center for Financial Frictions
URI:	http://eprints.lse.ac.uk/id/eprint/90158

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