A Contribution to Factor Model: A Firm Behavior Perspective

Authors

  • Yang LIU Guanghua School of Management, Peking University

DOI:

https://doi.org/10.14738/assrj.34.1966

Keywords:

volatility factor, relative risk aversion coefficient, internal rate of return

Abstract

This paper proposes a neglected factor determining the stock returns from the perspective of firm
behavior, i.e. the volatility of the asset of corresponding firms and thus contributes to the factor model.To this end, we model the wealth accumulation path of the firms and derive the relationship between risk premium and asset volatility. We document robust evidence that one standard deviation rise in volatility requires an increase of risk premium by 21.1%. Besides, we find that listed firms in China are more risk averse and required a higher return by investors than those in United States, and phenomena are more pronounced in non-state-owned enterprises and firms in competitive industries. These findings suggest that capital market in China is immature and too speculative, corresponding policy implications are thus derived. 

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Published

2016-04-26

How to Cite

LIU, Y. (2016). A Contribution to Factor Model: A Firm Behavior Perspective. Advances in Social Sciences Research Journal, 3(4). https://doi.org/10.14738/assrj.34.1966