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Calendar Cycles, Infrequent Decisions, and the Cross Section of Stock Returns

Ravi Jagannathan · Srikant Marakani · Hitoshi Takehara · Wang Yong

26 citations0/0 files storedManagement Science

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Stochastic processes and financial applications

Abstract

We show that when investors review their consumption and investment plans infrequently at different points in time with interim information flows, the standard consumption-based capital asset pricing model (CCAPM) will continue to hold only at those points in time when all investors review their plans. Stylized facts suggest that the end of the tax year is a candidate for one such points in time. Therefore, we should expect more support for the CCAPM during the period surrounding the end of the tax year, i.e., the fourth and first quarters in Japan where the tax year ends in December, and the first and second quarters in the United Kingdom where the tax year ends in April. Our empirical findings are consistent with these expectations. This paper was accepted by Wei Xiong, finance.

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References

1993Common risk factors in the returns on stocks and bonds 1973Risk, Return, and Equilibrium: Empirical Tests 1978Asset Prices in an Exchange Economy 1979An intertemporal asset pricing model with stochastic consumption and investment opportunities 1993Understanding Risk and Return 1976The Valuation of Uncertain Income Streams and the Pricing of Options 1992On the Estimation of Beta-Pricing Models 1983Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns

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2008Expected Returns and the Business Cycle: Heterogeneous Goods and Time-Varying Risk Aversion 2018World output gap and global stock returns 2016Global Economic Growth and Expected Returns Around the World: The End-of-the-Year Effect 2016CHRISTMAS ECONOMICS—A SLEIGH RIDE

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