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Leverage and the Cross‐Section of Equity Returns.
- Source :
- Journal of Finance (John Wiley & Sons, Inc.); Jun2019, Vol. 74 Issue 3, p1431-1471, 41p, 11 Charts, 5 Graphs
- Publication Year :
- 2019
-
Abstract
- Building on theoretical asset pricing literature, we examine the role of market risk and the size, book‐to‐market (BTM), and volatility anomalies in the cross‐section of unlevered equity returns. Compared with levered (stock) returns, unlevered market beta plays a more important role in explaining the cross‐section of unlevered equity returns, even after controlling for size and BTM. The size effect is weakened, while the value premium and the volatility puzzle virtually disappear for unlevered returns. We show that leverage induces heteroskedasticity in returns. Unlevering returns removes this pattern, which is otherwise difficult to address by controlling for leverage in regressions. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 00221082
- Volume :
- 74
- Issue :
- 3
- Database :
- Complementary Index
- Journal :
- Journal of Finance (John Wiley & Sons, Inc.)
- Publication Type :
- Academic Journal
- Accession number :
- 136381576
- Full Text :
- https://doi.org/10.1111/jofi.12758