Cross-Sectional Asset Pricing with Individual Stocks: Betas versus Characteristics

We develop a methodology for bias-corrected return-premium estimation from cross-sectional regressions of individual stock returns on betas and characteristics. Over the period from July 1963 to December 2013, there is some evidence of positive beta premiums on the profitability and investment factors of Fama and French (2014), a negative premium on the size factor and a less robust positive premium on the market, but no reliable pricing evidence for the book-tomarket and momentum factors. Firm characteristics consistently explain a much larger proportion of variation in estimated expected returns than factor loadings, however, even with all six factors included in the model.