Horizon pricing

Avraham Kamara, Robert A. Korajczyk*, Xiaoxia Lou, Ronnie Sadka

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

21 Scopus citations

Abstract

The literature documents heterogeneity in the delay of stock price reaction to systematic shocks, implying that asset risk depends on investment horizon. We study the pricing of risk factors across investment horizons. Value (liquidity) risk is priced over intermediate (short) horizons. Conditioning horizon-factor exposures on firm characteristics indicates that characteristics, with the exception of momentum, are not priced beyond their contribution to systematic risk. Long-horizon institutional investors overweight assets with high intermediate-horizon exposures to value risk and high short-horizon exposures to liquidity risk. The results highlight the importance of investment horizon in determining risk premia.

Original languageEnglish (US)
Pages (from-to)1769-1793
Number of pages25
JournalJournal of Financial and Quantitative Analysis
Volume51
Issue number6
DOIs
StatePublished - Dec 1 2016

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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