Determinants of Expected Stock Returns: Large Sample Evidence fromthe German Market

This paper conducts a comprehensive asset pricing study based on a unique dataset for theGerman stock market. For the period 1963 to 2006 we show that value characteristics andmomentum explain the cross-section of stock returns. Corresponding factor portfolios havesignificant premiums across various double-sorted characteristic-based test assets. In a horserace of competing asset pricing models the Fama-French 3-factor model does a poor job inexplaining average stock returns. The Carhart 4-factor model performs much better, but a 4-factor model containing an earnings-to-price factor instead of a size factor does even slightlybetter.