The cross section of expected firm (not equity) returns
By: Peter Hecht
Contributors: Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 03-044; Working paper (Harvard Business School. Division of Research) -- 03-044
Publisher: Division of Research, Harvard Business School
Published: 2003
Place of publication: Boston]
Language: eng
Number of pages: 14
Description: This paper provides the first comprehensive study of expected firm (unlevered equity) returns. After accounting for the debt component of the firm return, I find that many of the cross sectional determinants of expected equity returns, such as the book-to-market ratio (value) and recent past equity returns (momentum), are substantially less powerful in explaining expected firm returns. In general, my results suggest that Modigliani and Miller (1958) capital structure effects, not the pricing of the firm's entire asset base, play a major role in understanding many asset pricing regularities observed in the equity markets.
Notes: Includes bibliographical references.