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Author : Stephen F. Gordon
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (753 download)
Download or read book Estimating a Continuous-time Asset Pricing Model with State-dependent Risk Aversion written by Stephen F. Gordon and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Xuan Liang (Economist)
Publisher :
ISBN 13 : 9781321848380
Total Pages : 99 pages
Book Rating : 4.8/5 (483 download)
Download or read book Implications of Homeownership for Endogenous Risk Aversion, Asset Pricing and Portfolio Composition written by Xuan Liang (Economist) and published by . This book was released on 2015 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation studies the role of housing in asset pricing and household asset allocation. Housing is unique in the sense that it is both an asset and a consumption good. In addition, any adjustment in housing consumption will incur a non-convex adjustment cost. This makes housing adjustment infrequent. Due to these unique characteristics, the role of housing in a household portfolio is quite different from financial assets such as stocks and bonds. The first chapter, "The Housing CCAPM with Adjustment Costs and Heterogeneous Agents" examines how the inclusion of housing consumption in the utility function can increase the volatility and countercyclicality of the stochastic discount factor and thus help explain a higher level of equity premium despite only moderate curvature of the utility function. The keys to better performance of the model are (i) existence of the adjustment cost (ii) non-separability between housing goods and nondurable goods in the utility function and (iii) low substitutability between housing consumption and nondurable consumption. It is also shown that the housing CCAPM performs better than a standard CCAPM in explaining the variation of cross-sectional risk premia. Chapter 2, "Implications of the Housing Market for Endogenous Risk Aversion" studies household portfolio choice in a partial equilibrium model with housing consumption, adjustment costs, and varying housing prices. It is shown that household relative risk aversion is dependent on their house value to wealth ratio. Therefore, by changing the household's house value to wealth ratio, variation in house prices can affect household stock holdings through a change in household risk aversion. In addition, the model has two specific implications for households. The first is that volatile house price dynamics leads to more frequent moving. The second is that household moving leads to higher relative risk aversion. In general equilibrium, these effects would imply that volatile housing prices can lead to a higher moving frequency and thus result in a higher level of aggregate risk aversion, which would increase the price of risk in the risky asset markets. We provide empirical evidence that there is a high correlation between housing price volatility and the price of risk. Chapter 3, "Implications of the Housing Model for Moving Frequency, Relative Risk Aversion and the Portfolio Share of Risky Assets" tests the implications of the household portfolio choice model developed in Chapter 2 using household level data from the Panel Study of Income Dynamics and finds that the empirical evidence is consistent with the model. Firstly, we use cross-sectional variation in state level house prices and household moving to study the relationship between the volatility of house prices and moving frequency. Secondly, we use household moving and portfolio data to study the effect of moving on risk aversion. In addition, Chapter 3 also studies the effect of becoming unemployed on household moving by solving a model with housing consumption, adjustment costs, and a stochastic labor income process. The result suggests that the overall effect of unemployment is to reduce the frequency of moving. In addition, a sudden shift to an unemployed status can increase household risk aversion. Thus in general equilibrium, we would expect that a higher unemployment rate will increase economy wide risk aversion, which will in turn decrease the demand for stocks and increase the risk premium required. This provides a new channel (through the change in risk aversion) for the unemployment rate to affect asset prices.
Author : Xian Yang
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (133 download)
Download or read book An Investigation of Asset Pricing Puzzles with Cyclical Risk Aversion and Intertemporal Substitution written by Xian Yang and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Representative agent models that embed the Lucas-Breeden (Lucas (1978), Breeden (1979)) paradigm for explaining asset return differentials are generally regarded as inconsistent with the empirical data. Difficulties such as the equity premium puzzle (Mehra and Prescott (1985)), the risk free rate puzzle (Weil (1989)), etc., are well documented and it has been shown that these puzzles are very robust (Kocherlakota (1996), Campbell (1996) and Cochrane (1997) provide good surveys). Recently, however, several authors (Campbell and Cochrane (1999), Gordon and St. Amour (2000, 2001) and Bakshi and Chen (1996) are some examples) have pointed to time-varying risk aversion as a potential source of mis-specification that may account for these puzzles. However, risk aversion and intertemporal substitution are intertwined in these models, just as they are in the additive expected utility model, therefore it is impossible to interpret unambiguously which feature of preferences varies over the cycle. The preferences suggested by Epstein and Zin (1989) can separate the coefficient of relative risk aversion ('CRRA') from the elasticity of intertemporal substitution ('EIS') and allow average consumption growth to have a much smaller effect than consumption volatility on the risk free interest rate. This paper generalizes the model of Epstein and Zin (1989) by allowing the representative agent to display countercyclical risk aversion and assesses if such behavior can add to the explanation of various empirical phenomena that have been investigated in finance and macroeconomics, such as the Mehra and Prescott (1985) equity premium puzzle. I investigate various combinations of state dependent 'CRRA' with state dependent 'EIS'. In the case of constant ' EIS' and time varying 'CRRA', my results look very similar to those generated without state dependence. However, I also investigate the same model but with time varying 'EIS' and constant ' CRRA'. I find that a time varying 'EIS' provides delightful results. I also find that time varying 'EIS' combined with a time varying 'CRRA' leads to even better results. As a further check, I use my calibrated preference parameters to predict the long-term interest rate. The calibrated preference parameters lead to very sensible term structure predictions. I also investigate a similar problem in an open economy. Based on a two-country general equilibrium model, I investigate the asset pricing puzzles from a different angle; i.e. an analysis of the predictability of excess rates of return on discount bonds, equities and foreign money markets using regression analysis. My work in an open economy setting basically supports Bekaert, Hodrick and David (1997) conclusion. I find that when I introduce both time varying ' EIS' and 'CRRA' into my two country model, the improved predictability of excess returns is insignificant. My results uphold a stronger statement: incorporating first order risk aversion with a simple pattern for time varying risk aversion and intertemporal substitution does not help much either. But my findings do not rule out the possibility that there could exist a richer pattern of time varying [rho] and à such that the estimated ßs can match the stylized results.
Author : Robert A. Jarrow
Publisher : Springer Nature
ISBN 13 : 3030744108
Total Pages : 470 pages
Book Rating : 4.0/5 (37 download)
Download or read book Continuous-Time Asset Pricing Theory written by Robert A. Jarrow and published by Springer Nature. This book was released on 2021-07-30 with total page 470 pages. Available in PDF, EPUB and Kindle. Book excerpt: Asset pricing theory yields deep insights into crucial market phenomena such as stock market bubbles. Now in a newly revised and updated edition, this textbook guides the reader through this theory and its applications to markets. The new edition features new results on state dependent preferences, a characterization of market efficiency and a more general presentation of multiple-factor models using only the assumptions of no arbitrage and no dominance. Taking an innovative approach based on martingales, the book presents advanced techniques of mathematical finance in a business and economics context, covering a range of relevant topics such as derivatives pricing and hedging, systematic risk, portfolio optimization, market efficiency, and equilibrium pricing models. For applications to high dimensional statistics and machine learning, new multi-factor models are given. This new edition integrates suicide trading strategies into the understanding of asset price bubbles, greatly enriching the overall presentation and further strengthening the book’s underlying theme of economic bubbles. Written by a leading expert in risk management, Continuous-Time Asset Pricing Theory is the first textbook on asset pricing theory with a martingale approach. Based on the author’s extensive teaching and research experience on the topic, it is particularly well suited for graduate students in business and economics with a strong mathematical background.
Author : John Heaton
Publisher :
ISBN 13 :
Total Pages : 76 pages
Book Rating : 4.3/5 ( download)
Download or read book An Empirical Investigation of Asset Pricing with Temporally Dependent Preference Specifications written by John Heaton and published by . This book was released on 1991 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Mariana Khapko
Publisher :
ISBN 13 :
Total Pages : 59 pages
Book Rating : 4.:/5 (13 download)
Download or read book Asset Pricing with Dynamically Inconsistent Agents written by Mariana Khapko and published by . This book was released on 2016 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a framework to study general equilibrium implications for an economy in which agents are allowed to have dynamically inconsistent time and risk preferences. This framework accommodates, but is not limited to, the following settings: (1) non-exponential discounting; (2) horizon dependent risk aversion; (3) current state dependent risk aversion. In these models preferences over future outcomes change over time and thus the Bellman optimality principle does not hold. In the spirit of Strotz (1955) I take a game theoretic approach to the solution of agent's problem.
Author : Jean-Pierre Danthine
Publisher :
ISBN 13 :
Total Pages : 45 pages
Book Rating : 4.:/5 (129 download)
Download or read book On the Consequences of State Dependent Preferences for the Pricing of Financial Assets written by Jean-Pierre Danthine and published by . This book was released on 2011 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper introduces state dependent utility into the standard Mehra and Prescott (1985) economy by allowing the representative agent's coefficient of relative risk aversion to vary with the underlying economy's growth rate. Existence of equilibrium is proved and its asymptotic properties analyzed. This generalization leads to level dependent marginal rates of substitution, a property that sharply distinguishes this model from the standard construct. For very low coefficients of relative risk aversion, the equilibrium risk free and risky security returns are demonstrated to have volatilities and an associated equity premium that substantially exceed what is found in the data. This provides a contrasting perspective on the classic quot;equity premium puzzle.quot.
Author : Fernando Alvarez
Publisher :
ISBN 13 :
Total Pages : 63 pages
Book Rating : 4.:/5 (246 download)
Download or read book Quantitative Asset Pricing Implications of Endogenous Solvency Constraints written by Fernando Alvarez and published by . This book was released on 1999 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. We present a simple example for which efficient allocations and all equilibrium elements are characterized analytically. The main model produces large equity premia and risk premia for long term bonds with low risk aversion and a plausibly calibrated income process. We characterize the deviations from independence of aggregate and individual income uncertainty that produce equity and term premia
Author : John H. Cochrane
Publisher : Now Publishers Inc
ISBN 13 : 1933019158
Total Pages : 117 pages
Book Rating : 4.9/5 (33 download)
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Author : Christian L. Goulding
Publisher :
ISBN 13 :
Total Pages : 42 pages
Book Rating : 4.:/5 (13 download)
Download or read book Revisiting Asset Pricing with Uncertainty in Future Risk Aversion written by Christian L. Goulding and published by . This book was released on 2018 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: In asset pricing models, the indirect synchronizations of changes in time-varying relative risk aversion (RRA) with changes in elasticity of intertemporal substitution (EIS) and/or changes in consumption growth are overlooked confounding factors that limit our understanding of the role of time-varying RRA in asset pricing. I isolate away time-varying RRA from the confounders of perfectly synchronized changes in EIS and consumption growth and from other complexities. Holding EIS fixed under recursive utility and relaxing perfect correlation between RRA and consumption growth, I show that rare and short-lived stochastic shifts in RRA can explain major empirical asset pricing facts.
Author : H. Kent Baker
Publisher : John Wiley & Sons
ISBN 13 : 0470769688
Total Pages : 1184 pages
Book Rating : 4.4/5 (77 download)
Download or read book Behavioral Finance written by H. Kent Baker and published by John Wiley & Sons. This book was released on 2010-10-01 with total page 1184 pages. Available in PDF, EPUB and Kindle. Book excerpt: A definitive guide to the growing field of behavioral finance This reliable resource provides a comprehensive view of behavioral finance and its psychological foundations, as well as its applications to finance. Comprising contributed chapters written by distinguished authors from some of the most influential firms and universities in the world, Behavioral Finance provides a synthesis of the most essential elements of this discipline, including psychological concepts and behavioral biases, the behavioral aspects of asset pricing, asset allocation, and market prices, as well as investor behavior, corporate managerial behavior, and social influences. Uses a structured approach to put behavioral finance in perspective Relies on recent research findings to provide guidance through the maze of theories and concepts Discusses the impact of sub-optimal financial decisions on the efficiency of capital markets, personal wealth, and the performance of corporations Behavioral finance has quickly become part of mainstream finance. If you need to gain a better understanding of this topic, look no further than this book.
Author : Markus Konrad Brunnermeier
Publisher : Oxford University Press, USA
ISBN 13 : 9780198296980
Total Pages : 264 pages
Book Rating : 4.2/5 (969 download)
Download or read book Asset Pricing Under Asymmetric Information written by Markus Konrad Brunnermeier and published by Oxford University Press, USA. This book was released on 2001 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt: The role of information is central to the academic debate on finance. This book provides a detailed, current survey of theoretical research into the effect on stock prices of the distribution of information, comparing and contrasting major models. It examines theoretical models that explain bubbles, technical analysis, and herding behavior. It also provides rational explanations for stock market crashes. Analyzing the implications of asymmetries in information is crucial in this area. This book provides a useful survey for graduate students.
Author : Paolo Vanini
Publisher :
ISBN 13 :
Total Pages : 59 pages
Book Rating : 4.:/5 (129 download)
Download or read book Risk, Robustness and Knightian Uncertainty in Continuous-Time, Heterogenous Agents, Financial Equilibria written by Paolo Vanini and published by . This book was released on 2002 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze and compare analytically continuous-time financial equilibria where heterogeneous risk averse investors care about model misspecification through some preference for robustness and in the presence of a stochastic opportunity set. This incorporates a concern for model misspecification into equilibrium asset prices. Since no exact equilibrium computations are possible in this model setting, perturbation theory is used to provide first order asymptotics for the implied equilibria. We find that to first order robustness enhances eective risk aversion while keeping constant the preference for intertemporal substitution. Therefore, equilibrium consumption, equilibrium capital stock dynamics (in production economies) and equilibrium stock price processes (in exchange economies) are not directly modified by a preference for robustness. By contrast, robustness aects directly optimal portfolios, causing lower equilibrium interest rates - and thereby enhanced risk premia - when the speculative investment motive dominates the intertem-poral hedging demand. Finally, at variance with other robustness specifications, definitions of robustness that mimic Knightian uncertainty produce state dependent eective risk aversions that generate first order risk aversion eects on optimal portfolios, equilibrium interest rates and equity premia. This yields functional forms for some key equilibrium variables like equity premia which are structurally different from those implied by standard risk aversion or other robustness definitions, which reflect all second order risk aversion. Moreover, under Knightian uncertainty the structure of an equilibrium depends strongly on the completeness of the underlying economy. For instance, within complete production economies we find that Knightian uncertainty can generate an endogenous stock market participation, a feature that cannot be obtained by the other robustness definitions. The richness of the equilibrium eects generated in our heterogenous economies suggests that definitions of robustness which mimic Knightian uncertainty can generate the largest variety of robust economic behaviours in the presence of model uncertainty.
Author : Lars Peter Hansen
Publisher : Princeton University Press
ISBN 13 : 0691170975
Total Pages : 453 pages
Book Rating : 4.6/5 (911 download)
Download or read book Robustness written by Lars Peter Hansen and published by Princeton University Press. This book was released on 2016-06-28 with total page 453 pages. Available in PDF, EPUB and Kindle. Book excerpt: The standard theory of decision making under uncertainty advises the decision maker to form a statistical model linking outcomes to decisions and then to choose the optimal distribution of outcomes. This assumes that the decision maker trusts the model completely. But what should a decision maker do if the model cannot be trusted? Lars Hansen and Thomas Sargent, two leading macroeconomists, push the field forward as they set about answering this question. They adapt robust control techniques and apply them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics. Technical, rigorous, and self-contained, this book will be useful for macroeconomists who seek to improve the robustness of decision-making processes.
Author : Chenghu Ma
Publisher : World Scientific Publishing Company
ISBN 13 : 1911299522
Total Pages : 818 pages
Book Rating : 4.9/5 (112 download)
Download or read book Advanced Asset Pricing Theory written by Chenghu Ma and published by World Scientific Publishing Company. This book was released on 2011-01-03 with total page 818 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a broad introduction of modern asset pricing theory with equal treatments for both discrete-time and continuous-time modeling. Both the no-arbitrage and the general equilibrium approaches of asset pricing theory are treated coherently within the general equilibrium framework.The analyses and coverage are up to date, comprehensive and in-depth. Topics include microeconomic foundation of asset pricing theory, the no-arbitrage principle and fundamental theorem, risk measurement and risk management, sequential portfolio choice, equity premium decomposition, option pricing, bond pricing and term structure of interest rates. The merits and limitations are expounded with respect to allocation and information market efficiency, along with the classical expectations hypothesis concerning the information content of yield curve and bond prices. Efforts are also made towards the resolution of several well-documented puzzles in empirical finance, which include the equity premium puzzle, the risk free rate puzzle, and the money-ness bias phenomenon of Black-Scholes option pricing model.The theory is self-contained and unified in presentation. The inclusion of proofs and derivations to enhance the transparency of the underlying arguments and conditions for the validity of the economic theory makes an ideal advanced textbook or reference book for graduate students specializing in financial economics and quantitative finance. The explanations are detailed enough to capture the interest of those curious readers, and complete enough to provide necessary background material needed to explore further the subject and research literature.
Author : Cheng-Few Lee
Publisher : Springer Science & Business Media
ISBN 13 : 0387262849
Total Pages : 861 pages
Book Rating : 4.3/5 (872 download)
Download or read book Encyclopedia of Finance written by Cheng-Few Lee and published by Springer Science & Business Media. This book was released on 2006-07-27 with total page 861 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a major new reference work covering all aspects of finance. Coverage includes finance (financial management, security analysis, portfolio management, financial markets and instruments, insurance, real estate, options and futures, international finance) and statistical applications in finance (applications in portfolio analysis, option pricing models and financial research). The project is designed to attract both an academic and professional market. It also has an international approach to ensure its maximum appeal. The Editors' wish is that the readers will find the encyclopedia to be an invaluable resource.
Author : John Eatwell
Publisher : W. W. Norton & Company
ISBN 13 : 9780393027389
Total Pages : 340 pages
Book Rating : 4.0/5 (273 download)
Download or read book The New Palgrave written by John Eatwell and published by W. W. Norton & Company. This book was released on 1990 with total page 340 pages. Available in PDF, EPUB and Kindle. Book excerpt: Each volume in this series includes a collection of authoritative essays from the New Palgrave: A Dictionary of Economics, selected by the Editors to illustrate the range and diversity of economic thought on a particular topic.
