Investment Horizon and the Cross Section of Expected Returns: Evidence from the Tokyo Stock Exchange

Pin-Huang Chou

Yuan-Lin Hsu
and   Guofu Zhou

Using data from the Tokyo Stock Exchange, we study how beta, size, and ratio of book to market equity (BE/ME) account for the cross-section of expected stock returns over different lengths of investment horizons. We find that $\beta $, adjusted for infrequent trading or not, fails to explain the cross-section of monthly expected returns, but does a much better job for horizons over half- and one-year. However, either the size or the BE/ME alone is still a significant factor in explaining the cross-section expected returns, but the size significance diminishes for longer horizons when $\beta$ is included as an additional independent variable. 

Key Words: Investment horizon; Beta; Size; Book-to-market equity; CAPM.
JEL Classification Numbers: C13, C53, G14.