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Capital Asset Market Equilibrium With Liquidity Risk Portfolio Constraints And Asset Price Bubbles
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Book Synopsis Capital Asset Market Equilibrium With Liquidity Risk, Portfolio Constraints, and Asset Price Bubbles by : Robert A. Jarrow
Download or read book Capital Asset Market Equilibrium With Liquidity Risk, Portfolio Constraints, and Asset Price Bubbles written by Robert A. Jarrow and published by . This book was released on 2018 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives an equilibrium asset pricing model with endogenous liquidity risk, portfolio constraints, and asset price bubbles. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Asset price bubbles are generated by the existence of portfolio constraints, e.g. short sale prohibitions and margin requirements. Under a restrictive set of assumptions, we prove a unique equilibrium price process exists for our economy. We characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including both liquidity risk and asset price bubbles. This yields a generalized intertemporal and consumption CAPM for our economy. In contrast to the traditional models without liquidity risk or asset price bubbles, there are additional systematic liquidity risk and asset price bubble factors which are related to the stock return's covariation with liquidity risk and asset price bubbles.
Book Synopsis Capital Asset Market Equilibrium With Liquidity Risk, Trading Constraints, and Asset Price Bubbles by : Robert A. Jarrow
Download or read book Capital Asset Market Equilibrium With Liquidity Risk, Trading Constraints, and Asset Price Bubbles written by Robert A. Jarrow and published by . This book was released on 2018 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives an equilibrium asset pricing model with endogenous liquidity risk, trading constraints, and asset price bubbles. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Asset price bubbles are generated by the existence of trading constraints, e.g. short sale prohibitions and margin requirements. Under a strong set of assumptions, we prove a unique equilibrium price process exists for our economy. We characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including both liquidity risk and asset price bubbles. This yields a generalized intertemporal and consumption CAPM for our economy. In contrast to the traditional models without liquidity risk or asset price bubbles, there are additional systematic liquidity risk and asset price bubble factors which are related to the stock return's covariation with liquidity risk and asset price bubbles.
Book Synopsis Liquidity and Asset Prices by : Yakov Amihud
Download or read book Liquidity and Asset Prices written by Yakov Amihud and published by Now Publishers Inc. This book was released on 2006 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Book Synopsis Asset Price Bubbles, Market Liquidity and Systemic Risk by : Robert A. Jarrow
Download or read book Asset Price Bubbles, Market Liquidity and Systemic Risk written by Robert A. Jarrow and published by . This book was released on 2019 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies an equilibrium model with heterogeneous agents, asset price bubbles, and trading constraints. Market liquidity is modeled as a stochastic quantity impact from trading on the price. Bubbles are larger in liquid markets and when trading constraints are more binding. Systemic risk is defined as an unanticipated shock that results in the nonexistence of an equilibrium in the economy. A realization of systemic risk results in a significant loss of wealth. Systemic risk increases as: (i) the fraction of agents seeing an asset price bubble increases, (ii) as the market becomes more illiquid, and (iii) as trading constraints are relaxed.
Download or read book Market Liquidity written by Yakov Amihud and published by Cambridge University Press. This book was released on 2012-11-12 with total page 293 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large position. Liquidity risk is higher if a security becomes more illiquid when it needs to be traded in the future, which will raise trading cost. The book shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation. Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity services. When these become constrained, there is a liquidity crisis which leads to downward price and liquidity spiral. Overall, the volume demonstrates the important role of liquidity in asset pricing.
Book Synopsis Financial Markets Theory by : Emilio Barucci
Download or read book Financial Markets Theory written by Emilio Barucci and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 473 pages. Available in PDF, EPUB and Kindle. Book excerpt: A presentation of classical asset pricing theory, this textbook is the only one to address the economic foundations of financial markets theory from a mathematically rigorous standpoint and to offer a self-contained critical discussion based on empirical results. Tools for understanding the economic analysis are provided, and mathematical models are presented in discrete time/finite state space for simplicity. Examples and exercises included.
Book Synopsis A New Model of Capital Asset Prices by : James W. Kolari
Download or read book A New Model of Capital Asset Prices written by James W. Kolari and published by Springer Nature. This book was released on 2021-03-01 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.
Book Synopsis An Equilibrium Capital Asset Pricing Model in Markets with Price Jumps and Price Bubbles by : Robert A. Jarrow
Download or read book An Equilibrium Capital Asset Pricing Model in Markets with Price Jumps and Price Bubbles written by Robert A. Jarrow and published by . This book was released on 2017 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives an equilibrium capital asset pricing model (CAPM) in a market where asset prices can exhibit price jumps and price bubbles. We derive a generalized intertertemporal CAPM and consumption CAPM for these markets. The derived risk return relation differs from the classical results only in the characterization of the state price density, which depends on the existence of price bubbles, and in the number and quantity of systematic risk factors.
Book Synopsis Capital Market Equilibria by : Günter Bamberg
Download or read book Capital Market Equilibria written by Günter Bamberg and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 233 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Price Bubbles by : Ms.Anna Scherbina
Download or read book Asset Price Bubbles written by Ms.Anna Scherbina and published by International Monetary Fund. This book was released on 2013-02-21 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Why do asset price bubbles continue to appear in various markets? This paper provides an overview of recent literature on bubbles, with significant attention given to behavioral models and rational models with frictions. Unlike the standard rational models, the new literature is able to model the common characteristics of historical bubble episodes and offer insights for how bubbles are initiated and sustained, the reasons they burst, and why arbitrage forces do not routinely step in to squash them. The latest U.S. real estate bubble is described in the context of this literature.
Book Synopsis Asset Market Equilibrium with Liquidity Risk by : Robert A. Jarrow
Download or read book Asset Market Equilibrium with Liquidity Risk written by Robert A. Jarrow and published by . This book was released on 2017 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists for our economy and we characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including liquidity risk. In contrast to the traditional models without liquidity risk, there is an additional systematic liquidity risk factor which is related to the stock return's covariation with the market's stochastic liquidity cost. Traditional transaction costs are a special case of our formulation.
Book Synopsis Capital Asset Prices: A Theory of Market Equilibrium under the Conditions of Risk by : Thomas Hayer
Download or read book Capital Asset Prices: A Theory of Market Equilibrium under the Conditions of Risk written by Thomas Hayer and published by GRIN Verlag. This book was released on 2009 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Studienarbeit aus dem Jahr 2004 im Fachbereich BWL - Investition und Finanzierung, Note: 1,3, Helmut-Schmidt-Universität - Universität der Bundeswehr Hamburg, 19 Quellen im Literaturverzeichnis, Sprache: Deutsch, Abstract: Diese Arbeit befasst sich mit dem Capital Asset Pricing Model (CAPM), ein Kapitalmarktmodell, welches von John Lintner1, Jan Mossin2 und William F. Sharpe3, getrennt voneinander, entwickelt wurde. Als Grundlage dient die von William F. Sharpe 1964 im Journal of Finance verfasste Arbeit, die den Erfolgsbeitrag einer einzelnen Aktie bzw. eines einzelnen Wertpapiers in Abhängigkeit von dessen Risiko in einem gleichgewichtigen Kapitalmarkt abbildet. Das dargestellte Modell basiert auf den Annahmen eines vollkommenen Kapitalmarktes. Dies impliziert das Fehlen von in der Praxis anfallenden Transaktionskosten sowie Steuern und anderen Friktionen, wie z.B. Markteintrittsbarrieren. Weiterhin wird angenommen, dass die Wertpapiere beliebig teilbar sind. Es wird ein vollständiger Wettbewerb aller Marktteilnehmer zu Grunde gelegt, und somit ist es einem einzelnen Teilnehmer nicht möglich den Preis der Wertpapiere zu beeinflussen. Daneben stehen den Marktteilnehmern alle Informationen jederzeit kostenlos zur Verfügung, und alle Investoren verhalten sich rational, indem sie ihren erwarteten Nutzen gemäß maximieren. Weiterhin gilt es für das Verständnis des Modells anzumerken, dass Investoren nach nur zwei Kriterien ihre Anlageentscheidung treffen. Als Erfolgskriterium betrachten die Anleger den erwarteten Ertrag den eine Aktie innerhalb einer Periode erwirtschaftet. Als Risikokriterium wird die Standardabweichung, d.h. die Abweichung vom Erwartungswert nach beiden Seiten, angesehen. Ausgehend von der Problemstellung vor der Sharpe stand, wird kurz auf den damaligen Stand der Diskussion eingegangen und anschließend wird erörtert auf welche weiteren Annahmen sein Modell fußt. Im Weiteren wird das CAPM in seinen Grundzügen erklärt und anschließend kritisch betrach
Book Synopsis Asset Pricing with Liquidity Risk by : Viral V. Acharya
Download or read book Asset Pricing with Liquidity Risk written by Viral V. Acharya and published by . This book was released on 2010 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper solves explicitly an equilibrium asset pricing model with liquidity risk -- the risk arising from unpredictable changes in liquidity over time. In our liquidity-adjusted capital asset pricing model, a security's required return depends on its expected liquidity as well as on the covariances of its own return and liquidity with market return and market liquidity. In addition, the model shows how a negative shock to a security's liquidity, if it is persistent, results in low contemporaneous returns and high predicted future returns. The model provides a simple, unified framework for understanding the various channels through which liquidity risk may affect asset prices. Our empirical results shed light on the total and relative economic significance of these channels.
Book Synopsis Asset Pricing with Liquidity Risk by : Viral V. Acharya
Download or read book Asset Pricing with Liquidity Risk written by Viral V. Acharya and published by . This book was released on 2004 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Capital Market Equilibrium and Efficiency by : James L. Bicksler
Download or read book Capital Market Equilibrium and Efficiency written by James L. Bicksler and published by Free Press. This book was released on 1977 with total page 664 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Pricing in General Equilibrium with Constraints by : Georgy Chabakauri
Download or read book Asset Pricing in General Equilibrium with Constraints written by Georgy Chabakauri and published by . This book was released on 2010 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We evaluate the impact of portfolio constraints on financial markets in a dynamic equilibrium pure exchange economy with one consumption good and heterogeneous investors. Despite numerous applications, portfolio constraints are notoriously difficult to incorporate into dynamic equilibrium analysis unless constrained investors are assumed to have logarithmic preferences. Our solution method yields new insights on the impact of constraints on stock prices without relying on this assumption. We compute the equilibrium when both investors have (identical for simplicity) CRRA preferences, one of them is unconstrained while the other faces an upper bound constraint on the proportion of wealth invested in stocks. We show that tighter constraints lead to higher price-dividend ratios and lower stock-return volatilities when the intertemporal elasticity of substitution (IES) is less than one, and lower price-dividend ratios and higher volatilities when IES is greater than one. Moreover, in the latter case the model generates countercyclical market prices of risk and stock return volatilities, procyclical price-dividend ratios, excess volatility and other patterns consistent with empirical findings. Finally, the baseline analysis is extended to study the impact of various portfolio constraints when investors disagree on mean dividend growth rates. In particular, we explicitly characterize the equilibrium in the unconstrained benchmark economy as well as in the economy with unconstrained pessimist and optimist facing no-borrowing constraint.
Book Synopsis Robert C. Merton and the Science of Finance: A Collection by : Luis Garcia-Feijóo
Download or read book Robert C. Merton and the Science of Finance: A Collection written by Luis Garcia-Feijóo and published by CFA Institute Research Foundation. This book was released on 2020 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2019, MIT hosted a 75th birthday symposium in honor of Robert C. Merton. The event included presentations by students and colleagues explaining the influence Merton has had on the profession and on their ideas. Each presenter focused on a specific aspect of Merton’s life and contributions so that the audience could gain a full picture of Merton’s influence while avoiding repetition across presentations. The brief contains edited transcripts of some of the speeches and panel discussions that took place at the symposium. The presentations cover Merton’s career, highlighting both his foundational work on continuous time finance and the functional approach to understanding organizations as well as recent work on retirement security and trust. Some of the presentations unveil new aspects of his life. Merton’s father, Robert K. Merton, was one of the most important sociologists of the 20th century, being the originator of concepts such as role model, unanticipated consequences, and self-fulfilling prophecies. Another of the presentations makes a convincing case for Merton as the first financial engineer; the presenter argues that a body of knowledge becomes a science when a field of engineering emerges from it. If that is the case, this brief achieves two goals. It celebrates the influence of Merton on the theory and practice of finance through a series of engaging presentations, and it traces the birth of finance as a science on its own.
