Determinants of expected stock returns : large sample evidence from the German market

This paper conducts a comprehensive asset pricing study based on a unique dataset for the German stock market. For the period 1963 to 2006 we show that two value characteristics (book-to-market equity, earnings-to-price) and momentum explain the cross-section of stock returns. Corresponding factor portfolios have significant premiums across various doublesorted characteristic-based test assets. In a horse race of competing asset pricing models the Fama-French 3-factor model does a poor job in explaining average stock returns, whereas the Carhart 4-factor model performs well. However, both models are inferior to a 4-factor model containing an earnings-to-price factor instead of a size factor. -- asset pricing ; characteristics ; risk factors ; multifactor models ; Germany