Paola Brighi and Antonio Carlo Francesco Della Bina, Department of Management, Via Capo di Lucca 34, 40126 Bologna and RCEA - Rimini Center for Economic Analysis, University of Bologna, Via Angherà 22, 47900 Rimini, Italy. E-mail: email@example.com, firstname.lastname@example.org
The Determinants of Risk Premia on the Italian Stock Market: Empirical Evidence on Common Factors in Asset Pricing Models
Article first published online: 20 JUN 2013
© 2013 The Authors Economic Notes © 2013 Banca Monte dei Paschi di Siena SpA
Volume 42, Issue 2, pages 103–133, July 2013
How to Cite
BRIGHI, P., d'ADDONA, S. and DELLA BINA, A. C. F. (2013), The Determinants of Risk Premia on the Italian Stock Market: Empirical Evidence on Common Factors in Asset Pricing Models. Economic Notes, 42: 103–133. doi: 10.1111/j.1468-0300.2013.12004.x
We would like to thank Marie Lambert, Monika Kerekes, Nader Virk, the meeting participants to the 2011 World Finance Conference and the 2012 Multinational Finance Society Annual Conference for helpful comments. Special thanks to an anonymous referee for his suggestions. An earlier draft of this paper circulated under the title ‘Long-run evidence using multifactor asset pricing models’. The usual disclaimers apply.
- Issue published online: 20 JUN 2013
- Article first published online: 20 JUN 2013
We study the pricing factor structure of Italian equity returns using 25 years of data. A two-step empirical analysis is provided where first we estimate an unrestricted multifactor model to test if there is any evidence of misspecification. Then, we estimate the restricted model through the Generalized Methods of Moments. We find that the market premium and the size premium are confirmed for a domestic Italian investor. On the contrary, weak evidence is found for the value premium. Finally, we highlight, that augmenting the model with a momentum factor may at least partially improve its performance. As a robustness check we control if the above results also hold for three shorter sub-periods taking into account the macroeconomic and financial conditions that characterized the Italian economy. The results are generally confirmed in the case of the size and value factors while the momentum effect shows an irregular trend playing any role in the first sub-period but becoming more important in the subsequent two.