Timescale betas and the cross section of equity returns: Framework, application, and implications for interpreting the Fama–French factors

Byoung Uk Kang, Francis In, Tong Suk Kim

Research output: Journal article publicationJournal articleAcademic researchpeer-review

8 Citations (Scopus)

Abstract

Given this, we develop a wavelet-based framework that examines the cross-sectional pricing implications of isolating these timescale betas. An empirical application to the Fama–French model reveals that the model's well-known empirical success is largely due to the beta components associated with a timescale just short of a business cycle (i.e., wavelet scale 3). This implies that any viable explanation for the success of the Fama–French model that has been applied to the Fama–French factors should apply particularly to the scale 3 components of the factors. We find that a risk-based explanation conforms closely to this implication.
Original languageEnglish
Pages (from-to)15-39
Number of pages25
JournalJournal of Empirical Finance
Volume42
DOIs
Publication statusPublished - 1 Jun 2017

Keywords

  • Asset pricing
  • Cross section of stock returns
  • Fama–French factors
  • Timescale betas
  • Wavelets

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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