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Conditioning Variables And The Cross Section Of Stock Returns
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Book Synopsis Conditioning Variables and the Cross-section of Stock Returns by : Wayne E. Ferson
Download or read book Conditioning Variables and the Cross-section of Stock Returns written by Wayne E. Ferson and published by . This book was released on 1999 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous studies have identified predetermined variables that have some power to explain the time series of stock and bond returns. This paper shows that loadings on the same variables also provide significant cross-sectional explanatory power for stock portfolio returns. These loadings are important, over and the above the variables advocated by Fama and French (1993) in their three factor model, ' and also the four factors of Elton, Gruber and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The lagged variables reveal information about the cross-section of expected returns that is not captured by popular asset pricing factors. These results carry implications for risk analysis, performance measurement, cost-of-capital calculations and other applications
Book Synopsis Conditioning Variables and the Cross-Section of Stock Returns by : Wayne E. Ferson
Download or read book Conditioning Variables and the Cross-Section of Stock Returns written by Wayne E. Ferson and published by . This book was released on 2010 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous studies have identified predetermined variables that have some power to explain the time series of stock and bond returns. This paper shows that loadings on the same variables also provide significant cross-sectional explanatory power for stock portfolio returns. These loadings are important, over and the above the variables advocated by Fama and French (1993) in their three factor model,' and also the four factors of Elton, Gruber and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The lagged variables reveal information about the cross-section of expected returns that is not captured by popular asset pricing factors. These results carry implications for risk analysis, performance measurement, cost-of-capital calculations and other applications.
Book Synopsis A Comparison of Factor Models for Explaining the Cross Section of Stock Returns by : Yong Wang
Download or read book A Comparison of Factor Models for Explaining the Cross Section of Stock Returns written by Yong Wang and published by . This book was released on 2005 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We run a horse race among eight proposed factors and eight proposed conditioning variables for explaining the cross section of stock returns. The purpose is to better understand which factors, in combination with which conditioning variables, seem robust in explaining cross-sectional data, and to seek an economic interpretation of the specifications that appear most promising. We find that a consumption growth factor, conditioning on lagged business income growth, is the most successful in explaining cross sectional variation of average quarterly returns in the 25 Fama-French portfolios.
Book Synopsis Conditioning Information, Out-of-Sample Validation, and the Cross-Section of Stock Returns by : Kevin Q. Wang
Download or read book Conditioning Information, Out-of-Sample Validation, and the Cross-Section of Stock Returns written by Kevin Q. Wang and published by . This book was released on 2004 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical research on conditional asset pricing has been built on several standard return-predictive variables. However, recent studies have raised serious doubts on these variables that typically serve as the instruments to capture the relevant conditioning information. In the stochastic discount factor framework, we propose and implement a new approach to assess the value of the standard instruments. We compare the out-of-sample performances of conditional models that are built on different subsets of several widely-used instruments. We find that some combinations of these instruments, after adjusting for the effect of the horse-race over all the subsets, can significantly improve the out-of-sample performance for pricing the cross-section of stock returns. In contrast, some other subsets give rise to conditional models that drastically underperform the unconditional model. The results affirm the value of the conditioning instruments for cross-sectional asset pricing and highlight the importance of instrument selection.
Book Synopsis Essays on the Cross Section of Stock Returns by : Yong Wang
Download or read book Essays on the Cross Section of Stock Returns written by Yong Wang and published by . This book was released on 2005 with total page 139 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many factor models, with a variety of conditioning variables, have been proposed to explain cross-sectional returns. In chapter 2, we run a horse race among several proposed models. The purpose is to better understand which factors, in combination with which conditioning variables, explain the cross section of returns better, and to seek an economic interpretation of the specifications that appear most promising. We find that a consumption growth factor, conditioning on lagged business income growth, is the most successful in explaining cross sectional variation of average quarterly returns in the 25 Fama-French portfolios.
Book Synopsis Empirical Asset Pricing by : Wayne Ferson
Download or read book Empirical Asset Pricing written by Wayne Ferson and published by MIT Press. This book was released on 2019-03-12 with total page 497 pages. Available in PDF, EPUB and Kindle. Book excerpt: An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
Book Synopsis The Cross Section of Common Stock Returns by : Donald B. Keim
Download or read book The Cross Section of Common Stock Returns written by Donald B. Keim and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A growing number of empirical studies suggest that betas of common stocks do not adequately explain cross-sectional differences in stock returns. Instead, a number of other variables (e.g., size, ratio of book to market, earnings/price) that have no basis in extant theoretical models seem to have significantly predictive ability. Some interpret the findings as evidence of market efficiency. Others argue that the Capital Asset Pricing Model is an incomplete description of equilibrium price formation and these variables are proxies for additional risk factors. In this paper we review the evidence on the cross-sectional behavior of common stock returns on the U.S. and other equity markets around the world. We also report some new evidence on these cross-sectional relations using data from both U.S. and international stock markets. We find, among other results, that although the return premia associated with these ad hoc variables are significant in most international stock markets, the premia are uncorrelated across markets. The accumulating evidence prompts the following question: If these return premia occur primarily in January and are uncorrelated across major international equity markets, is it reasonable to characterize them as compensation for risk?
Book Synopsis Composition of wealth, conditioning information, and the cross-section of stock returns by : Nikolai Roussanov
Download or read book Composition of wealth, conditioning information, and the cross-section of stock returns written by Nikolai Roussanov and published by . This book was released on 2010 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: I test conditional implications of linear asset pricing models in which variables reflecting changing composition of total wealth capture time-variation in the consumption risk exposures of asset returns. I estimate conditional moments of returns and factor risk prices nonparametrically and show that while the consumption risk of value stocks does increase relative to that of growth stocks in "bad'' times, their conditional expected returns do not. Consequently, imposing the conditional moment restrictions results in large pricing errors, virtually eliminating the advantage of conditional models over the unconditional ones. Thus, exploiting conditioning information to impose joint restrictions on the time-series and the cross-sectional properties of asset returns exposes an additional challenge for consumption-based asset pricing models. While the puzzle is robust to alternative measures of consumption risk, it may be less pronounced for models that rely on the long-run consumption risk encoded in the aggregate financial wealth.
Book Synopsis Relation between Time-Series and Cross-Sectional Effects of Idiosyncratic Variance on Stock Returns by : Hui Guo
Download or read book Relation between Time-Series and Cross-Sectional Effects of Idiosyncratic Variance on Stock Returns written by Hui Guo and published by . This book was released on 2010 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Consistent with the post-1962 U.S. evidence by Ang, Hodrick, Xing, and Zhang [Ang, A., Hodrick, R., Xing Y., Zhang, X., 2006. The cross-section of volatility and expected returns. Journal of Finance 51, 259-299.], we find that stocks with high idiosyncratic variance (IV) have low CAPM-adjusted expected returns in both pre-1962 U.S. and modern G7 data. We also test in three ways the conjecture that IV is a proxy of systematic risk. First, the return difference between low and high IV stocks -- that we dub as IVF -- is a priced factor in the cross-section of stock returns. Second, loadings on lagged market variance and lagged average IV account for a significant portion of variation in average returns on portfolios sorted by IV. Third, the variance of IVF correlates closely with average IV, and the two variables have similar explanatory power for the time-series and cross-sectional stock returns.
Book Synopsis Aggregation of Information About the Cross Section of Stock Returns by : Nathaniel Light
Download or read book Aggregation of Information About the Cross Section of Stock Returns written by Nathaniel Light and published by . This book was released on 2017 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new approach for estimating expected returns on individual stocks from a large number of firm characteristics. We treat expected returns as latent variables and apply the partial least squares (PLS) estimator that filters them out from the characteristics under an assumption that the characteristics are linked to expected returns through one or few common latent factors. The estimates of expected returns constructed by our approach from twenty six firm characteristics generate a wide cross-sectional dispersion of realized returns and outperform estimates obtained by alternative techniques. Our results also provide evidence of commonality in asset pricing anomalies.
Book Synopsis Macroeconomic Risk and the Cross-Section of Stock Returns by : Jangkoo Kang
Download or read book Macroeconomic Risk and the Cross-Section of Stock Returns written by Jangkoo Kang and published by . This book was released on 2014 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a conditional version of the consumption capital asset pricing model (CCAPM) using the conditioning variable from the cointegrating relation among macroeconomic variables (dividend yield, term spread, default spread, and short-term interest rate). Our conditioning variable has a strong power to predict market excess returns in the presence of competing predictive variables. In addition, our conditional CCAPM performs about as well as Fama and French's (1993) three-factor model in explaining the cross-section of the Fama and French 25 size and book-to-market sorted portfolios. Our specification shows that value stocks are riskier than growth stocks in bad times, supporting the risk-based story.
Book Synopsis Macroeconomic Risk and the Cross-Section of Stock Returns by : Tong Suk Kim
Download or read book Macroeconomic Risk and the Cross-Section of Stock Returns written by Tong Suk Kim and published by . This book was released on 2009 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a conditional version of the consumption CAPM using the conditioning variable from the cointegrating relation among macroeconomic variables (dividend yield, term spread, default spread, and short-term interest rate). Our conditioning variable has a strong power to predict market excess returns in the presence of the competing predictive variables. In addition, our conditional consumption CAPM performs about as well as the Fama and French (1993) three-factor model in explaining the cross-section of the Fama and French 25 size and book-to-market sorted portfolios. Our specification shows that value stocks are riskier than growth stocks in bad times supporting the risk-based story.
Book Synopsis Conditioning Variables and the Empirical Test of the Stock Returns in US Market by : Min Liu
Download or read book Conditioning Variables and the Empirical Test of the Stock Returns in US Market written by Min Liu and published by . This book was released on 2002 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Empirical Asset Pricing by : Turan G. Bali
Download or read book Empirical Asset Pricing written by Turan G. Bali and published by John Wiley & Sons. This book was released on 2016-02-26 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Book Synopsis Essays on the Cross-sectional and Time-series Behavior of Stock Returns by : Vinod Chandrashekaran
Download or read book Essays on the Cross-sectional and Time-series Behavior of Stock Returns written by Vinod Chandrashekaran and published by . This book was released on 1994 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Cross-Section of Stock Returns by : Stijn Claessens
Download or read book The Cross-Section of Stock Returns written by Stijn Claessens and published by . This book was released on 2016 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several factors besides m ...
Book Synopsis Financial Markets and the Real Economy by : John H. Cochrane
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.
