Skip to main content
Article thumbnail
Location of Repository

Fundamentals and Systematic Risk in Stock Returns

By John Y. Campbell, Christopher Polk and Tuomo VuolteenahoJohn Y. Campbell, Christopher Polk and Tuomo Vuolteenaho


The cash ßows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices (driven by movements in the equity risk premium), while the cash ßows of value stocks are particularly sensitive to permanent movements in aggregate stock prices (driven by market-wide shocks to cash ßows.) Thus the high betas of growth stocks with the market’s discount-rate shocks, and of value stocks with the market’s cash-ßow shocks, are determined by the cash-ßow fundamentals of growth and value companies. Growth stocks are not merely “glamour stocks ” whose systematic risks are purely driven by investor sentiment. More generally, accounting measures of Þrm-level risk have predictive power for Þrms ’ betas with market-wide cash ßows, and this predictive power arises from the behavior of Þrms ’ cash ßows. The systematic risks of stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals. Why do stock prices move together? If stocks are priced by discounting their cash ßows at a rate which is constant over time, although possibly varying across stocks

Year: 2003
OAI identifier: oai:CiteSeerX.psu:
Provided by: CiteSeerX
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • (external link)
  • http://www.economics.harvard.e... (external link)
  • Suggested articles

    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.