Investment horizon and the cross section of expected returns: Evidence from the Tokyo stock exchange

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 β, adjusted for infrequent trading or not, fails to explain the cross-section of monthly expected returns, but does amuch 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 β is included as an additional independent variable.