Horizon pricing

Avraham Kamara; Robert A. Korajczyk; Xiaoxia Lou; Ronnie Sadka

doi:10.1017/S0022109016000685

Horizon pricing

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

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › peer-review

51 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 language	English (US)
Pages (from-to)	1769-1793
Number of pages	25
Journal	Journal of Financial and Quantitative Analysis
Volume	51
Issue number	6
DOIs	https://doi.org/10.1017/S0022109016000685
State	Published - Dec 1 2016

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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10.1017/S0022109016000685

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title = "Horizon pricing",

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.",

author = "Avraham Kamara and Korajczyk, {Robert A.} and Xiaoxia Lou and Ronnie Sadka",

note = "Publisher Copyright: {\textcopyright} Michael G. Foster School of Business, University of Washington 2016.",

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AU - Lou, Xiaoxia

AU - Sadka, Ronnie

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AB - 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.

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Horizon pricing

Abstract

ASJC Scopus subject areas

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