The Cross-Section of Stock Returns before 1926 (And Beyond)

84 Pages Posted: 24 Nov 2021 Last revised: 31 Dec 2021

See all articles by Guido Baltussen

Guido Baltussen

Erasmus University Rotterdam (EUR); Robeco Quantitative Investments

Bart van Vliet

Robeco Quantitative Investments; Erasmus University Rotterdam (EUR)

Pim van Vliet

Robeco Quantitative Investments

Date Written: November 24, 2021

Abstract

We study the cross-section of stock returns using a novel constructed database of U.S. stocks covering 61 years of additional and independent data. Our database contains data on stock prices, dividends and hand-collected market capitalizations for 1,488 major stocks between 1866-1926. Results over this ‘pre-CRSP’ era reveal a flat relation between market beta and returns, an insignificant size premium, and significant momentum, value and low-risk premiums that are of similar size as over the post-1926 period. Overall, stock characteristics can explain over 25% of variation in stock returns. Further, recent machine learning methods are successful in predicting cross-sectional returns out-of-sample. These results show strong out-of-sample robustness of traditional factor models and novel machine learning methods.

Keywords: empirical asset pricing, return anomalies, machine learning, factor premiums, p-hacking, momentum, value, beta, low volatility, size

JEL Classification: G10, G11, N21, N22

Suggested Citation

Baltussen, Guido and van Vliet, Bart and van Vliet, Pim, The Cross-Section of Stock Returns before 1926 (And Beyond) (November 24, 2021). Available at SSRN: https://ssrn.com/abstract=3969743 or http://dx.doi.org/10.2139/ssrn.3969743

Guido Baltussen (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Bart Van Vliet

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Erasmus University Rotterdam (EUR)

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Pim Van Vliet

Robeco Quantitative Investments ( email )

Rotterdam, 3011 AG
Netherlands

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