Intertemporal Market Risks and the Cross-section of Greek Average Returns

This article examines whether the overall market risk, along with risks reflecting uncertainty related to the long-run dynamics of market cash flows (dividends) and discount rates (returns), price average returns on single-sorted portfolios in the Greek stock market. Our results suggest that a two-beta intertemporal capital asset pricing model explains half of the cross-sectional variation in average returns and delivers an economically and statistically acceptable estimate of the coefficient of relative risk aversion. Despite the relative importance of market discount-rate risk, it is market dividend-growth risk that turns out to be far more significant in determining average returns on Greek portfolios.