CoChat
Sign Up
Cited by 839Financial Markets and Investment StrategiesFinancial Analysis and Corporate GovernanceFinancial Risk and Volatility Modeling

Conditioning variables and the cross-section of stock returns

Open access
Ferson, Wayne E., Harvey, Campbell R.·1999·The Journal of Finance
DOI 10.1111/0022-1082.00148
Open this paper in CoChat — free accountOpen PDF

Abstract

Previous studies identify predetermined variables that predict stock and bond returns through time. This paper shows that loadings on the same variables provide significant cross‐sectional explanatory power for stock portfolio returns. The loadings are significant given the three factors advocated by Fama and French (1993) and the four factors of Elton, Gruber, and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The results carry implications for risk analysis, performance measurement, cost‐of‐capital calculations, and other applications.

The claims and statistics of this paper haven’t been checked yet.

Run the check — free, no account needed. It reads the open-access text and checks the sources it cites.

A few free checks a day · papers already verified open instantly · results are public

Integrity signals

Registry

Crossref · 10.1111/0022-1082.00148

Cites

2 of 2 references verified0 citation errors · 0 not checkable

Statistics

Claims the paper makes

The claims and statistics of this paper haven’t been checked yet.

Run the check — free, no account needed. It reads the open-access text and checks the sources it cites.

A few free checks a day · papers already verified open instantly · results are public

Claims other papers make about this one

Each is checked against this paper’s own text: does it say what the citing paper says it does?

  • The overarching model specified by (2) and (21) nests many models proposed in the literature.

    “The overarching model specified by ( 2) and ( 21) nests many models proposed in the literature (Rosenberg 1974; Harvey and Ferson 1999, among others).”

    From Empirical Asset Pricing via Machine Learning (2020) · cites this paper as Harvey and Ferson 1999

    In “A. Time-Series Tests” (page unavailable), Ferson and Harvey describe a general conditional-return model and show that setting its alpha to zero gives the Fama–French model; they also relate their specification to several earlier studies. Our copy does not establish that the citing paper’s own equations (2) and (21) nest those models. (LLM, conf=0.74)

    Experimental — accuracy not yet measured

Self-check

Percentages, sums and reported differences re-computed from the paper’s own numbers.

The self-check needs the paper’s full text.

Cites

Flagged first, then by citations

Research works printed but not linked: 64

  1. Banz, Rolf W., 1981, The relationship between return and market value of common stocks, Journal of Financial Economics 9, 3-18.
  2. Barber, B. M., and J. D. Lyon, 1997, Firm size, book-to-market ratio and security returns: A holdout sample of financial firms, Journal of Finance 52, 875-901.
  3. Basu, Sanjoy, 1977, The investment performance of common stocks in relation to their price- earnings ratios: A test of the efficient markets hypothesis, Journal of Finance 32, 663-682.
  4. Becker, C., W. Ferson, D. Myers and M. Schill, 1999, Conditional market timing with bench- mark investors, Journal of Financial Economics 52, 119-148.
  5. Berk, Jonathan B., 1995, A critique of size-related anomalies, Review of Financial Studies 8, 275-286.
  6. Black, Fischer, 1972, Capital market equilibrium with restricted borrowing, Journal of Busi- ness 45, 444-455.
  7. Black, Fischer, 1993, Beta and return, Journal of Portfolio Management 20, 8-18.
  8. Braun, Phillip, Daniel Nelson, and Alain Sunier, 1995, Good news, bad news, volatility and betas, Journal of Finance 50, 1575-1604.
  9. Breeden, Douglas T., 1979, An intertemporal asset pricing model with stochastic consumption and investment opportunities, Journal of Financial Economics 7, 265-296.
  10. Breen, William, Lawrence R. Glosten, and Ravi Jagannathan, 1989, Economic significance of predictable variations in stock index returns, Journal of Finance 44, 1177-1190.
  11. Brennan, M., T. Chordia, and A. Subrahmanyam, 1998, Alternative factor specifications, secu- rity characteristics, and the cross-section of expected stock returns, Journal of Financial Economics 49, 345-73.
  12. Campbell, John Y., 1987, Stock returns and the term structure, Journal of Financial Economics 18, 373-400.
  13. Chan, K. C., Nai-fu Chen, and David Hsieh, 1985, An exploratory investigation of the firm size effect, Journal of Financial Economics 14, 451-472.
  14. Chan, Louis K.C., Yasushi Hamao, and Josef Lakonishok, 1991, Fundamentals and stock re- turns in Japan, Journal of Finance 46, 1739-1764.
  15. Chan, Louis K. C., Narasimhan Jegadeesh, and Josef Lakonishok, 1995, Evaluating the per- formance of value versus glamor stocks: The impact of selection bias, Journal of Financial Economics 38, 269-296.
  16. Chen, Nai-fu, Richard Roll, and Stephen A. Ross, 1986, Economic forces and the stock market, Journal of Business 59, 383-403.
  17. Connor, Gregory, and Robert A. Korajczyk, 1988, Risk and return in an equilibrium APT: Ap- plications of a new test methodology, Journal of Financial Economics 21, 255-289.
  18. Daniel, Kent, and Sheridan Titman, 1997, Evidence on the characteristics of cross-sectional variation in stock returns, Journal of Finance 52, 1-33.
  19. Elton, Edwin J., Martin J. Gruber, and Christopher R. Blake, 1995, Fundamental economic variables, expected returns, and bond fund performance, Journal of Finance 50, 1229-1256.
  20. Fama, Eugene F., 1990, Stock returns, expected returns, and real activity, Journal of Finance 45, 1089-1108.
  21. Fama, Eugene F., and Kenneth R. French, 1988, Dividend yields and expected stock returns, Journal of Financial Economics 22, 3-25.
  22. Fama, Eugene F., and Kenneth R. French, 1989, Business conditions and expected stock re- turns, Journal of Financial Economics 25, 23-50.
  23. Fama, Eugene F., and Kenneth R. French, 1992, The cross-section of expected returns, Journal of Finance 47, 427-465.
  24. Fama, Eugene F., and Kenneth R. French, 1995, Size and book-to-market factors in earnings and returns, Journal of Finance 50, 131-155.
  25. Fama, Eugene F., and Kenneth R. French, 1996, Multifactor explanations of asset pricing anom- alies, Journal of Finance 51, 55-87.
  26. Fama, Eugene F., and Kenneth R. French, 1997, Industry cost of equity, Journal of Financial Economics 43, 153-194.
  27. Fama, Eugene F., and Kenneth R. French, 1998, Value versus growth: The international evi- dence, Journal of Finance 53, 1975-1999.
  28. Fama, Eugene F., and James D. MacBeth, 1973, Risk, return and equilibrium: Empirical tests, Journal of Political Economy 81, 607-636.
  29. Fama, Eugene F., and G. William Schwert, 1977, Asset returns and inf lation, Journal of Fi- nancial Economics 5, 115-146.
  30. Ferson, Wayne E., 1989, Changes in expected security returns, risk and the level of interest rates, Journal of Finance 44, 1191-1218.
  31. Ferson, Wayne E., Stephen Foerster, and Donald B. Keim, 1993, Tests of general latent variable models and mean variance spanning, Journal of Finance 48, 131-156.
  32. Ferson, Wayne E., and Campbell R. Harvey, 1991, The variation of economic risk premiums, Journal of Political Economy 99, 385-415.
  33. Ferson, Wayne, and Robert Korajczyk, 1995, Do arbitrage pricing models explain the predict- ability of stock returns? Journal of Business 68, 309-349.
  34. Ferson, Wayne, Sergei Sarkissian, and Timothy Simin, 1999, The alpha factor asset pricing model: A parable, Journal of Financial Markets 2, 49-68.
  35. Ferson, Wayne, and Rudi Schadt, 1996, Measuring fund strategy and performance in changing economic conditions, Journal of Finance 51, 425-462.
  36. Foster, F. Douglas, Tom Smith, and Robert E. Whaley, 1997, Assessing goodness-of-fit of asset pricing models: The distribution of the maximal R 2 , Journal of Finance 52, 591-608.
  37. Ghysels, Eric, 1998, On stable factor structures in the pricing of risk: Do time-varying betas help or hurt?, Journal of Finance 53, 549-574.
  38. Gibbons, Michael R., and Wayne E. Ferson, 1985, Tests of asset pricing models with changing expectations and an unobservable market portfolio, Journal of Financial Economics 14, 217-236.
  39. Graham, Benjamin, and D. Dodd, 1934, Security Analysis ~McGraw-Hill, New York!.
  40. Hansen, Lars P., and Robert J. Hodrick, 1983, Risk averse speculation in forward foreign ex- change markets: An econometric analysis of linear models; in Jacob A. Frenkel, ed.: Ex- change Rates and International Macroeconomics ~University of Chicago Press, Chicago, IL!.
  41. Harvey, Campbell R., 1989, Time-varying conditional covariances in tests of asset pricing mod- els, Journal of Financial Economics 24, 289-318.
  42. Haugen, Robert A., and Nardin L. Baker, 1996, Commonality in the determinants of expected stock returns, Journal of Financial Economics 41, 401-440.
  43. Ibbotson Associates, 1998, Cost of Capital Quarterly 1998 Yearbook ~Ibbotson Associates, Chi- cago, IL!.
  44. Jagannathan, Ravi, Keiichi Kubota, and Y. Takehara, 1998, The relation between labor-income risk and average returns: Empirical evidence for the Japanese stock market, Journal of Business 71, 319-347.
  45. Jagannathan, Ravi, and Zhenwu Wang, 1996, The conditional CAPM and the cross-section of expected returns, Journal of Finance 51, 3-54.
  46. Jagannathan, Ravi, and Zhenwu Wang, 1998, Asymptotic theory for estimating beta pricing models using cross-sectional regressions, Journal of Finance 53, 1285-1309.
  47. Jegadeesh, Narasimhan, and Sheridan Titman, 1993, Returns of buying winners and selling losers, Journal of Finance 48, 65-91.
  48. Jensen, Michael C., 1968, The performance of mutual funds in the period 1945-1964, Journal of Finance 23, 389-446.
  49. Kan, Raymond, and Chu Zhang, 1999, Two-pass tests of asset pricing models with useless factors, Journal of Finance 54, 203-235.
  50. Keim, Donald B., and Robert F. Stambaugh, 1986, Predicting returns in the bond and stock markets, Journal of Financial Economics 17, 357-390.
  51. Kim, Dongcheol, 1995, The errors in the variables problem in the cross-section of expected stock returns, Journal of Finance 50, 1605-1634.
  52. Kim, Dongcheol, 1997, A reexamination of firm size, book-to-market, and earnings price in the cross-section of expected stock returns, Journal of Financial and Quantitative Analysis 32, 463-489.
  53. Kothari, S. P., and Jay Shanken, 1997, Book-to-market time series analysis, Journal of Finan- cial Economics 44, 169-203.
  54. Kothari, S. P., Jay Shanken, and Richard G. Sloan, 1995, Another look at the cross-section of expected stock returns, Journal of Finance 50, 185-224.
  55. Lakonishok, Josef, Andrei Shliefer, and Robert W. Vishny, 1994, Contrarian investment, extrap- olation and risk, Journal of Finance 49, 1541-1578.
  56. Lehmann, Bruce N., and David M. Modest, 1988, The empirical foundations of the arbitrage pricing theory, Journal of Financial Economics 21, 213-254.
  57. Litzenberger, Robert H., and Krishna Ramaswamy, 1979, The effect of personal taxes and div- idends on capital asset prices: Theory and empirical evidence, Journal of Financial Eco- nomics 7, 163-195.
  58. Lo, Andrew, and A. Craig MacKinlay, 1990, Data snooping biases in test of financial models, Review of Financial Studies 3, 175-208.
  59. Pesaran, M., and Alan Timmermann, 1995, Predictability of stock returns: Robustness and economic significance, Journal of Finance 50, 1201-1228.
  60. Pontiff, Jeffrey, and Lawrence Schall, 1998, Book-to-market as a predictor of market returns, Journal of Financial Economics 49, 141-160.
  61. Roll, Richard, 1977, A critique of the asset pricing theory's tests-part I: On past and potential testability of the theory, Journal of Financial Economics 4, 349-357.
  62. Ross, Stephen A., 1976, The arbitrage theory of capital asset pricing, Journal of Economic Theory 13, 341-360.
  63. Shanken, Jay, 1990, Intertemporal asset pricing: An empirical investigation, Journal of Econo- metrics 45, 99-120.
  64. Shanken, Jay, 1992, On the estimation of beta pricing models, Review of Financial Studies 5, 1-34.

Cited by

Sorted by citations

Authors
Ferson, W. E., & Harvey, C. R.
Affiliations
  • Duke University (US)
  • National Bureau of Economic Research (US)
ORCID
Venue
The Journal of Finance
Publisher
Wiley
Published
1999-08
Volume
54
Issue
4
Pages
1325-1360
ISSN
  • 0022-1082 (ISSN-L)
  • 1540-6261
DOI
10.1111/0022-1082.00148
OpenAlex
W3123752263
Cited by
839
References
2
Citations by year
2026: 16 · 2025: 19 · 2024: 25 · 2023: 26 · 2022: 20 · 2021: 23 · 2020: 25 · 2019: 27 · 2018: 33 · 2017: 29 · 2016: 25 · 2015: 42 · 2014: 46 · 2013: 34 · 2012: 63
FWCI
35.77
Type
journal article
Language
en
Open access
Licence
onlinelibrary.wiley.com/termsAndConditions#vor (vor, 1234 d)
Locations
The Journal of Finance (publishedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Business, Management and Accounting › Accounting › Financial Analysis and Corporate Governance
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Risk and Volatility Modeling
Keywords
cross-section of stock returns, conditioning variables, stock return predictability, Fama-French three-factor model, four-factor model, factor loadings, lagged variables, portfolio returns, risk analysis, performance measurement, cost of capital

About these checks

Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.

Statistics and arithmetic are recomputed, not judged.

Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.

What counts as a claim ›How we measure confidence ›How we check this ›

Are you an author, or do you see a problem with this page? Request a review