Tapio Pekkala
Bio sketch: Tapio Pekkala is a senior analyst in the Investment Policy department of the Norges Bank Investment Management. Tapio previously ran a London-based boutique asset management company, which focused on a global macro strategy.
Tapio received a PhD and MBA from the University of Chicago and was a Faculty Fellow at Harvard Business School.
Abstract: We propose a five-factor model based on tradable macro variables: expected dividend growth, expected dividend level, equity risk, expected inflation, and interest rates. We find that the expected dividend growth factor is the only tradable macro factor consistently priced in the cross-section of size and value sorted portfolios. This model also allows us to decompose the market portfolio into cash-flow and discount-rate components without estimating a vector autoregressive model. Using this decomposition we find that discount-rate factors are also priced in the cross-section in some specifications. However, the expected dividend growth beta bears a higher risk premium consistent with the “bad beta, good beta” theory of Campbell and Vuolteenaho (2004).