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- Title
The Seasonal Stability of the Factor Structure of Stock Returns.
- Authors
CHINHYUNG CHO, D.; TAYLOR, WILLIAM M.
- Abstract
This paper investigates the month-by-month stability of (a) daily returns and correlation coefficients of stock returns, (b) correlation and covariance matrices, (c) number of return-generating factors, and (d) the APT pricing relationship. The results show that there is a January effect and a small-firm effect in stock returns. Correlation matrices are more stable than covariance matrices, but both types of matrices are not stable across months and across the sample groups. The number of return-generating factors is rather stable most of the time and for most of the sample groups, but there is some significant instability that is related to the average correlation coefficients among stocks. The APT pricing relationship does not seem to be supported by the two-stage process using the maximum-likelihood factor analysis.
- Subjects
ECONOMIC seasonal variations; STOCK prices; RATE of return; STOCK price forecasting; ANALYSIS of covariance; PRICING; FACTOR analysis; STATISTICAL correlation; ECONOMIC forecasting; ECONOMIC trends; RISK premiums; CAPITAL assets pricing model
- Publication
Journal of Finance (Wiley-Blackwell), 1987, Vol 42, Issue 5, p1195
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1987.tb04361.x