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Intertemporal Market Risks and the Cross–Section of Greek Average Returns

Michail Koubouros, Department of Economics, University of Peloponnese and Management School, University of Liverpool, Terma Karaiskaki, 221 00 Tripolis, Greece. E–mail: m.koubouros{at}uop.gr

Ekaterini Panopoulou

Ekaterini Panopoulou, Department of Banking and Financial Management, University of Piraeus, Greece and Department of Economics, National University of Ireland Maynooth. E–mail: apano{at}nuim.ie.

This article examines whether the overall market risk, along with risks reflecting uncertainty related to the long–run dynamics of market cash flows (dividends) and discount rates (returns), price average returns on single–sorted portfolios in the Greek stock market. Our results suggest that a two–beta intertemporal capital asset pricing model explains half of the cross–sectional variation in average returns and delivers an economically and statistically acceptable estimate of the coefficient of relative risk aversion. Despite the relative importance of market discount–rate risk, it is market dividend–growth risk that turns out to be far more significant in determining average returns on Greek portfolios.

Key Words: JEL Classification: G11 • JEL Classification: G12 • JEL Classification: G14 • CAPM • beta • cash flow risk • discount rate risk • risk aversion

Journal of Emerging Market Finance, Vol. 6, No. 2, 203-227 (2007)
DOI: 10.1177/097265270700600204


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