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Time-series analysis reveals a significant risk-return tradeoff for size and value factors, suggesting implications for equity investment strategies.
Based on a time-series analysis of equity factors, this study documents a significant positive risk-return tradeoff for size and value factors in A-share Market, consistent with the predictions of the Arbitrage Pricing Theory (APT). This relationship remains robust after controlling for covariance with the market factor, providing support for Merton’s Intertemporal CAPM (ICAPM). In contrast, the risk-return tradeoff is found to be insignificant for the market factor itself, as well as for other factors. The conclusion continues to hold across a battery of robustness checks. This study refines the theoretical understanding of dynamic asset pricing by empirically validating that the intertemporal risk-return relationship.
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Shuyu Kong (2025) studied this question.
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