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Using expectations to test asset pricing models

Publication ,  Journal Article
Brav, A; Lehavy, R; Michaely, R
Published in: Financial Management
January 1, 2005

Asset pricing models generate predictions relating assets' expected rates of return and their risk attributes. Most tests of these models have employed realized rates of return as a proxy for expected return. We use analysts' expected rates of return to examine the relation between these expectations and firm attributes. By assuming that analysts' expectations are unbiased estimates of market-wide expected rates of return, we can circumvent the use of realized rates of return and provide evidence on the predictions emanating from traditional asset pricing models. We find a positive, robust relation between expected return and market beta and a negative relation between expected return and firm size, consistent with the notion that these are risk factors. We do not find that high book-to-market firms are expected to earn higher returns than low book-to-market firms, inconsistent with the notion that book-to-market is a risk factor.

Duke Scholars

Published In

Financial Management

DOI

ISSN

0046-3892

Publication Date

January 1, 2005

Volume

34

Issue

3

Start / End Page

31 / 64

Related Subject Headings

  • Finance
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
 

Citation

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Brav, A., Lehavy, R., & Michaely, R. (2005). Using expectations to test asset pricing models. Financial Management, 34(3), 31–64. https://doi.org/10.1111/j.1755-053X.2005.tb00109.x
Brav, A., R. Lehavy, and R. Michaely. “Using expectations to test asset pricing models.” Financial Management 34, no. 3 (January 1, 2005): 31–64. https://doi.org/10.1111/j.1755-053X.2005.tb00109.x.
Brav A, Lehavy R, Michaely R. Using expectations to test asset pricing models. Financial Management. 2005 Jan 1;34(3):31–64.
Brav, A., et al. “Using expectations to test asset pricing models.” Financial Management, vol. 34, no. 3, Jan. 2005, pp. 31–64. Scopus, doi:10.1111/j.1755-053X.2005.tb00109.x.
Brav A, Lehavy R, Michaely R. Using expectations to test asset pricing models. Financial Management. 2005 Jan 1;34(3):31–64.
Journal cover image

Published In

Financial Management

DOI

ISSN

0046-3892

Publication Date

January 1, 2005

Volume

34

Issue

3

Start / End Page

31 / 64

Related Subject Headings

  • Finance
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment