Calendar Cycles, Infrequent Decisions and the Cross-Section of Stock Returns
Management Science, Forthcoming
43 Pages Posted: 21 Mar 2007 Last revised: 10 Oct 2011
Date Written: November 8, 2007
We show that when investors review their consumption and investment plans infrequently at different points in time with interim information flow 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.
Keywords: CCAPM, Japanese stock market, UK stock market, cross-section of stock returns, infrequent decisions, deterministic cycles, calendar cycles
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