Cookies?
Library Header Image
LSE Research Online LSE Library Services

What is the expected return on a stock?

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

[img] Text - Accepted Version
Repository staff only until 18 April 2021.

Download (1MB) | Request a copy

Identification Number: 10.1111/jofi.12778

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
Sets: Departments > Finance
Date Deposited: 29 Aug 2018 15:06
Last Modified: 14 Nov 2019 00:03
Projects: 639744, DNRF102
Funders: Paul Woolley Centre, Economic Research Council, Center for Financial Frictions
URI: http://eprints.lse.ac.uk/id/eprint/90158

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics