Title: Equity risk factors for the long and short run: Pricing and performance at different frequencies
Authors: Terri van der Zwan - Ortec Finance (Netherlands)
Erik Hennink - Ortec Finance (Netherlands)
Patrick Tuijp - Ortec Finance / University of Amsterdam (Netherlands) [presenting]
Abstract: The empirical relations between macroeconomic factor models and Fama-French-type factor models are investigated, and their performance in explaining stock returns are compared at different frequencies through spectral analysis. The analysis considers both long-term variation and business cycle variation. The results show that Fama-French-type factors are more suitable than macroeconomic factors to explain the cross-section of equity returns in terms of R2 at multiple frequencies. The risk premia vary in magnitude over time and horizon. The value factor seems to be the most important factor in explaining the cross-section of equity returns on all frequencies. Regarding the macroeconomic factors, the industrial production factor, the credit spread and the term spread seem to play a bigger role on lower frequencies. Interestingly, we see that at lower frequencies macroeconomic factors and Fama-French factors seem to contain related information, while this is not the case at higher frequencies.