Empirical Analysis Of Multifactor Asset Pricing Models A Comparison Of Us And Japanese Reits

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Empirical Analysis of Multifactor Asset Pricing Models. A Comparison of US and Japanese REITs

Author : Tim Perschbacher
Publisher : GRIN Verlag
ISBN 13 : 3346903400
Total Pages : 146 pages
Book Rating : 4.3/5 (469 download)

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Book Synopsis Empirical Analysis of Multifactor Asset Pricing Models. A Comparison of US and Japanese REITs by : Tim Perschbacher

Download or read book Empirical Analysis of Multifactor Asset Pricing Models. A Comparison of US and Japanese REITs written by Tim Perschbacher and published by GRIN Verlag. This book was released on 2023-07-10 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, , language: English, abstract: This study is concerned with an empirical analysis of asset pricing. More specifically, this paper examines whether multifactor asset pricing models are able to explain variation in REIT returns in the US and Japan. In addition to traditional multifactor models, an Alternative Four-Factor Model (AFF) was developed considering net profit margin as an additional risk factor. Thence, this paper seeks to provide valuable information for investors and fund managers regarding their indirect real estate investment selection. Using a sample period between July 1994 (US) / July 2011 (Japan) to December 2020, rigorous multiple-time-series regression is applied to calculate factor loadings for each risk factor and the corresponding alpha values of each model to evaluate their effectiveness in explaining variation and cross-section of REIT returns. Most studies on asset pricing models focus on size and value sorted portfolios as dependent variables. This paper broadens the approach with four other double sorted test portfolios to check the robustness of each single factor to explain return anomalies. Results show that market premium and size premium represent risk factors for US-REITs, whereas market premium and value premium are suitable risk factors for Japanese-REITs. The momentum factor does not capture risk and is insignificant in both markets. The study shows low correlations between traditional and REIT specific as well as between US and Japanese risk factors. This suggests that firstly risk factors are country specific and secondly that they are asset specific. Moreover, the Fama-French Three-Factor Model (FF3) clearly outperforms the CAPM, while the Carhart Four-Factor Model (CH4) marginally improves the explanatory power over the FF3. This is observed in both markets. Outcomes demonstrate that the Alternative Four-Factor Model (AAF) does not improve prediction power for returns of Japanese-REITs compared to the FF3 and CH4. On the contrary, results are ambiguous concerning US-REITs. While the additional risk factor, net profit margin, generates a negative return, the model is superior to the FF3 and CH4 in terms of explaining variation and cross-section of returns.

Multifactor Asset Pricing Models for Real Estate Investment Trusts

Author : Tim Perschbacher
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (135 download)

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Book Synopsis Multifactor Asset Pricing Models for Real Estate Investment Trusts by : Tim Perschbacher

Download or read book Multifactor Asset Pricing Models for Real Estate Investment Trusts written by Tim Perschbacher and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

An Empirical and Theoretical Analysis of Capital Asset Pricing Model

Author : Mohammad Sharifzadeh
Publisher : Universal-Publishers
ISBN 13 : 1599423758
Total Pages : 180 pages
Book Rating : 4.5/5 (994 download)

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Book Synopsis An Empirical and Theoretical Analysis of Capital Asset Pricing Model by : Mohammad Sharifzadeh

Download or read book An Empirical and Theoretical Analysis of Capital Asset Pricing Model written by Mohammad Sharifzadeh and published by Universal-Publishers. This book was released on 2010-11-18 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: The problem addressed in this dissertation research was the inability of the single-factor capital asset pricing model (CAPM) to identify relevant risk factors that investors consider in forming their return expectations for investing in individual stocks. Identifying the appropriate risk factors is important for investment decision making and is pertinent to the formation of stocks' prices in the stock market. Therefore, the purpose of this study was to examine theoretical and empirical validity of the CAPM and to develop and test a multifactor model to address and resolve the empirical shortcomings of the single-factor CAPM. To verify the empirical validity of the standard CAPM and of the multifactor model, five hypotheses were developed and tested against historical monthly data for U.S. public companies. Testing the CAPM hypothesis revealed that the explanatory power of the overall stock market rate of return in explaining individual stock's expected rates of return is very weak, suggesting the existence of other risk factors. Testing of the other hypotheses verified that the implied volatility of the overall market as a systematic risk factor and the companies' size and financial leverage as nonsystematic risk factors are important in determining stock's expected returns and investors should consider these factors in their investment decisions. The findings of this research have important implications for social change. The outcome of this study can change the way individual and institutional investors as well as corporations make investment decisions and thus change the equilibrium prices in the stock market. These changes in turn could lead to significant changes in the resource allocation in the economy, in the economy's production capacity and production composition, and in the employment structure of the society.

Multi-Factor-Asset Pricing Models for German Stocks

Author : Wolfgang Bessler
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Multi-Factor-Asset Pricing Models for German Stocks by : Wolfgang Bessler

Download or read book Multi-Factor-Asset Pricing Models for German Stocks written by Wolfgang Bessler and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The large number of asset pricing models and empirical studies of stock returns are evidence of the desire to understand the return generating process of financial assets in general and for stocks in particular. One focus of the research in this area has been on multi-factor asset pricing models [Chen et al. (1986), Fama/French (1992)]. These models are based on the assumption that stock returns are generated by a limited number of economic variables such as company, industry or macroeconomic factors.The objective of this study is to analyze the importance of various economic factors in explaining the return structure for stocks in Germany and to investigate whether the impact of these factors is time varying. This is important, because in most studies of asset pricing models it is assumed that the parameters are non time varying. In particular, we investigate the time variability of the explanatory power and the beta coefficients in a multi-factor framework. For this we employ a rolling estimation procedure that allows us to analyze the time variability of the model coefficients.In the empirical analysis we use monthly data of four macroeconomic variables and the market index to explain the returns of four German industry indices for the period from 1974 to 2000. In contrast to most studies which exclude banks from their empirical analysis we use three industrial indices and a bank index. The economic factors included in our model are term spreads, interest rates, exchange rates and the ifo business index as well as the market index. The empirical results confirm that the factors used in our empirical analysis seem well suited to explain the stock returns especially for banks. Moreover, it is evident that the explanatory power and the beta coefficients are time varying.

An Empirical Study of a Conditional International Asset Pricing Model for US, Japanese, and European Stock and Government Bond Markets

Download An Empirical Study of a Conditional International Asset Pricing Model for US, Japanese, and European Stock and Government Bond Markets PDF Online Free

Author : Tom Arild Fearnley
Publisher :
ISBN 13 :
Total Pages : 263 pages
Book Rating : 4.:/5 (249 download)

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Book Synopsis An Empirical Study of a Conditional International Asset Pricing Model for US, Japanese, and European Stock and Government Bond Markets by : Tom Arild Fearnley

Download or read book An Empirical Study of a Conditional International Asset Pricing Model for US, Japanese, and European Stock and Government Bond Markets written by Tom Arild Fearnley and published by . This book was released on 2002 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation consists of three papers dedicated to empirical tests of a multivariate conditional international Capital Asset Pricing Model (CAPM). The aim is to evaluate to what extent such a model can explain stock and government bond returns in the US, Japan and Europe over the last 10 to 15 years, and whether the model can be usefully employed in global tactical asset allocation. The starting point is the international CAPM of Adler and Dumas (1983), which is made conditional through a multivariate GARCH-in-mean specification. The additional assumption that local inflation rates are zero or deterministic reduces inflation risk premia to currency risk premia. Data are analyzed at weekly frequency. The first paper introduces regime switching GARCH parameters. The second paper adds government bonds to the analysis, and evaluates four different models for the price of market risk. The third paper introduces regime switching prices of risk and intercept terms.

Multifactor Consumption Based Asset Pricing Models Using the US Stock Market as a Reference

Author : John Hunter
Publisher :
ISBN 13 :
Total Pages : 19 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Multifactor Consumption Based Asset Pricing Models Using the US Stock Market as a Reference by : John Hunter

Download or read book Multifactor Consumption Based Asset Pricing Models Using the US Stock Market as a Reference written by John Hunter and published by . This book was released on 2014 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we extend the time series analysis to the panel frame-work to test the C-CAPM driven by wealth references for developed countries. Speciጿically, we focus on a linearised form of the Consumption-based CAPM in a pooled cross section panel model with two-way error components. The empirical fiĳndings of this two-factor model with various speciጿications all indicate that there is signiጿicant unobserved heterogeneity captured by cross-country ጿixed effects when consumption growth is treated as a common factor, of which the average risk aversion coefficient is 4.285. However, the cross-sectional impact of home consumption growth varies dramatically over the countries, where unobserved heterogeneity of risk aversion can also be addressed by random effects.

Asset Pricing Factor Models in the German Stock Market

Author : Julian Fischer
Publisher : GRIN Verlag
ISBN 13 : 3346420094
Total Pages : 109 pages
Book Rating : 4.3/5 (464 download)

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Book Synopsis Asset Pricing Factor Models in the German Stock Market by : Julian Fischer

Download or read book Asset Pricing Factor Models in the German Stock Market written by Julian Fischer and published by GRIN Verlag. This book was released on 2021-06-14 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,7, University of Hannover (Institut für Finanzwirtschaft und Rohstoffmärkte), language: English, abstract: In this paper, we examine how various modern multifactor models, such as the Carhart factor model, five-factor model and its complement six-factor model by Fama and French, the q-factor model by Hou, Wue and Zhang, and the mispricing factor model by Stambaugh and Yuan perform in the German stock market. It is discernible that, depending on the application model, like factor spanning tests, different sortings, return anomalies, sector- and equity fund investigation, they often provide quite similar explanatory power, while in individual cases sometimes one and sometimes the other model performs better. The underlying factors contribute differently to the explanatory power depending on the time period. Thus, in case of doubt, the six-factor model is preferable, as it is the most versatile model. Since the establishment of the capital asset pricing model as a cornerstone of modern capital market theory in the 1960s, new investigations and studies have been built on this model on an ongoing basis. This continuously leads to extensions and modifications of the asset pricing models since then. These models can be used in various ways, for example to explain the pricing of risky financial assets under restrictive assumptions or to gain important insights into the relationship between expected return and risk of securities. These can be used in various ways, for example to explain the pricing of risky financial assets under restrictive assumptions or to gain important insights into the relationship between expected return and risk of securities. In this paper, we aim to answer the overarching research question of how modern asset pricing models perform for the German stock market. For this purpose, we first discuss the characteristics of the German stock market, followed by the milestones of the development of factor models, their empirical evidence and their factors, as well as internationally known return anomalies. In the subsequent part, five modern asset pricing models are tested in different scenarios of the German stock market, including factor spanning tests, different sortings, anomalies, sectors and in equity funds. For this purpose, various analytical methods are used and performed with the software “Stata”. Finally, the comprehensive results are summarized and concluded.

Multifactor Asset Pricing Model Evidence From Hotel Stocks and Lodging Real Estate Investment Trusts

Author : Fahad Almudhaf
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Multifactor Asset Pricing Model Evidence From Hotel Stocks and Lodging Real Estate Investment Trusts by : Fahad Almudhaf

Download or read book Multifactor Asset Pricing Model Evidence From Hotel Stocks and Lodging Real Estate Investment Trusts written by Fahad Almudhaf and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The main objective of this study is to examine the performance of hotel stocks and lodging real estate investment trusts (REITs) by estimating the recent Fama-French five-factor model (including investment and profitability factors) with an additional momentum factor during the 2000-2015 period. Using multi-factor models, results show that lodging REITs under-perform hotel stocks in the United States, while the opposite is true in Japan. Our findings indicate that the momentum factor is significant in explaining variation of lodging returns in both the United States and Japan. Smaller lodging firms are generating higher returns than larger firms in the United States and Japan, on average. Operating profitability is strongly associated with average returns of hotel stocks and REITs in the United States. However, it seems that the investment factor plays an insignificant role in the asset pricing of lodging industry stocks and REITs. We find no evidence of the effectiveness of adding profitability and investment factors in Japan. Our results offer valuable investment insights that help lodging investors better understand the nature of their investments. Also, findings of the current study would benefit hotel owners who are considering both organizational structures (i.e., REITs vs. C-corps) and portfolio managers who are considering lodging for diversification purposes.

Empirical Asset Pricing Models

Author : Jau-Lian Jeng
Publisher : Palgrave Macmillan
ISBN 13 : 9783030089320
Total Pages : 268 pages
Book Rating : 4.0/5 (893 download)

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Book Synopsis Empirical Asset Pricing Models by : Jau-Lian Jeng

Download or read book Empirical Asset Pricing Models written by Jau-Lian Jeng and published by Palgrave Macmillan. This book was released on 2019-01-05 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book analyzes the verification of empirical asset pricing models when returns of securities are projected onto a set of presumed (or observed) factors. Particular emphasis is placed on the verification of essential factors and features for asset returns through model search approaches, in which non-diversifiability and statistical inferences are considered. The discussion reemphasizes the necessity of maintaining a dichotomy between the nondiversifiable pricing kernels and the individual components of stock returns when empirical asset pricing models are of interest. In particular, the model search approach (with this dichotomy emphasized) for empirical model selection of asset pricing is applied to discover the pricing kernels of asset returns.

An Empirical Study of Capital Asset Pricing Model and Fama-French Three-Factor Model

Author : Soo Woo Choi
Publisher :
ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.:/5 (17 download)

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Book Synopsis An Empirical Study of Capital Asset Pricing Model and Fama-French Three-Factor Model by : Soo Woo Choi

Download or read book An Empirical Study of Capital Asset Pricing Model and Fama-French Three-Factor Model written by Soo Woo Choi and published by . This book was released on 2017 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis tests performances of Capital Asset Pricing Model and Fama-French Three-Factor Model. Through an empirical study on the US stocks from January 2000 to August 2017, the thesis demonstrates that Fama-French Three-Factor model performs better than Capital Asset Pricing Model.

Capital Asset Pricing Model

Author : Sachin Kuruvithadam
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (894 download)

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Book Synopsis Capital Asset Pricing Model by : Sachin Kuruvithadam

Download or read book Capital Asset Pricing Model written by Sachin Kuruvithadam and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Das Ziel dieser Arbeit ist es, die Gültigkeit des Capital-Asset-Pricing-Modells (CAPM) zu überprüfen. Zu diesem Zweck wird ein Test auf Portfolios mit amerikanischen Large-Caps-Aktien durchgeführt und der S&P500 Index wird als Proxy für das Marktportfolio verwendet. Der Betrachtungszeitraum umfasst neun Jahren von 2005 bis 2013. Dieser Zeitraum ist ebenfalls in drei Teilperioden von je drei Jahren aufgeteilt, um die Stationarität einiger Parameter zu bewerten. Zuerst wird eine Zeitreihenanalyse durchgeführt, um den Risikokoeffizient Beta und den Achsenabschnitt Alpha für jedes Portfolio zu schätzen und ihre statistische Signifikanz zu testen. Dann wird eine Querschnittsanalyse durchgeführt, um zu beurteilen, ob die aus der Zeitreihe geschätzte Betas zu den Ergebnissen führen, die vom Modell vorausgesetzt werden. Die Ergebnisse zeigen deutliche Abweichungen vom CAPM . Auch wenn die Beta-Werte statistisch signifikant gewesen sind, haben sich einige von ihnen von Teilperiode zu Teilperiode verändert, was zur Folge hat, dass die Schätzungen nicht stationär sind. Die Schätzungen der Abschnitte waren signifikant verschieden von Null in der gesamten Zeitperiode und manchmal insignifikant verschieden von Null in den Teilperioden: somit wird der hypothetische Wert von 0 abgelehnt. Folglich wird das CAPM für die betrachteten Portfolios abgelehnt. Allerdings gibt es bestimmte Einschränkungen, welche die Aussagekraft der durchgeführten Tests und die Bedeutung der erzielten Ergebnisse teilweise schwächen.

Techniques For Estimating the Generative Multifactor Model of Returns in a Statistical Approach to the Arbitrage Pricing Theory. Evidence from the Mexican Stock Exchange

Download Techniques For Estimating the Generative Multifactor Model of Returns in a Statistical Approach to the Arbitrage Pricing Theory. Evidence from the Mexican Stock Exchange PDF Online Free

Author : Rogelio Ladrón de Guevara Cortés
Publisher :
ISBN 13 :
Total Pages : 646 pages
Book Rating : 4.:/5 (97 download)

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Book Synopsis Techniques For Estimating the Generative Multifactor Model of Returns in a Statistical Approach to the Arbitrage Pricing Theory. Evidence from the Mexican Stock Exchange by : Rogelio Ladrón de Guevara Cortés

Download or read book Techniques For Estimating the Generative Multifactor Model of Returns in a Statistical Approach to the Arbitrage Pricing Theory. Evidence from the Mexican Stock Exchange written by Rogelio Ladrón de Guevara Cortés and published by . This book was released on 2016 with total page 646 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation focuses on the estimation of the generative multifactor model of returns on equities, under a statistical approach of the Arbitrage Pricing Theory (APT), in the context of the Mexican Stock Exchange. Therefore, this research takes as frameworks two main issues: (i) the multifactor asset pricing models, specially the statistical risk factors approach, and (ii) the dimension reduction or feature extraction techniques: Principal Component Analysis, Factor Analysis, Independent Component Analysis and Non-linear Principal Component Analysis, utilized to extract the underlying systematic risk factors. The models estimated are tested using two methodologies: (i) capability of reproduction of the observed returns using the estimated generative multifactor model, and (ii) results of the econometric contrast of the APT using the extracted systematic risk factors. Finally, a comparative study among techniques is carried on based on their theoretical properties and the empirical results. According to the above stated and as far as we concerned, this dissertation contributes to financial research by providing empirical evidence of the estimation of the generative multifactor model of returns on equities, extracting statistical underlying risk factors via classic and alternative dimension reduction or feature extraction techniques in the field of finance, in order to test the APT as an asset pricing model, in the context of an emerging financial market such as the Mexican Stock Exchange. In addition, this work presents an unprecedented theoretical and empirical comparative study among Principal Component Analysis, Factor Analysis, Independent Component Analysis and Neural Networks Principal Component Analysis, as techniques to extract systematic risk factors from a stock exchange, analyzing the level of sensitivity of the results in function of the technique carried on. In addition, this dissertation represents a mainly empirical exhaustive study where objective evidence about the Mexican stock market is provided by way of the application of four different techniques for extraction of systematic risk factors, to four datasets, in a test window that ranged from two to nine factors.

A Comparison of the Capital Asset Pricing Model and a Multiple Factor Model in Modern Portfolio Analysis

Author : Michael Scott Connors
Publisher :
ISBN 13 :
Total Pages : 104 pages
Book Rating : 4.:/5 (952 download)

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Book Synopsis A Comparison of the Capital Asset Pricing Model and a Multiple Factor Model in Modern Portfolio Analysis by : Michael Scott Connors

Download or read book A Comparison of the Capital Asset Pricing Model and a Multiple Factor Model in Modern Portfolio Analysis written by Michael Scott Connors and published by . This book was released on 1994 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt:

An Empirical Analysis of Intertemporal Asset Pricing Models with Transaction Costs and Habit Persistence

Author : Wessel Marquering
Publisher :
ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.:/5 (245 download)

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Book Synopsis An Empirical Analysis of Intertemporal Asset Pricing Models with Transaction Costs and Habit Persistence by : Wessel Marquering

Essays in Asset Pricing

Author : Man Li
Publisher :
ISBN 13 :
Total Pages : 382 pages
Book Rating : 4.:/5 (11 download)

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Book Synopsis Essays in Asset Pricing by : Man Li

Download or read book Essays in Asset Pricing written by Man Li and published by . This book was released on 2011 with total page 382 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis undertakes empirical and theoretical research in asset pricing in both US and Global financial markets, with a particular focus on the financial impact of socially responsible investment (SRI) and implementation of the ICAPM and CCAPM frameworks in the US market. We aim to provide a comprehensive analysis of the financial impact of SRI on the US and Global equity markets and to resolve issues relating to the CCAPM that remain in the asset pricing literature. Prior studies that examine the financial impact of SRI produce mixed findings. Therefore, we begin by reviewing the relevant international literature and stress the importance of selecting appropriate SRI proxies in asset pricing tests. We enrich the literature by identifying areas that need to be carefully considered in constructing an SRI proxy and this will shed new light on the question of what measure of SRI should be used. In the first empirical chapter, we examine the financial impact of SRI on global equity returns, assessing our SRI proxies in the context of standard asset pricing models. We find that SRI has no significant impact on the global equity market. However, since SRI has become an increasingly popular practice only recently, our results may be hampered by data constraints. This motivates the next stage of the analysis wherein we employ the ICAPM framework. In Chapter 3, we formulate a two-factor empirical model under the ICAPM framework and construct SRI proxies by using the economic tracking portfolio method of Lamont (2001) to further examine whether SRI has financial impacts on the US equity market. Our findings in Chapter 3 are consistent with those of Chapter 2. The combined import of our findings in both chapters suggests that investors are free to implement SRI mandates without fear of breaching their fiduciary duties from inferior performance due to incorporating an SRI process. This will encourage the adoption of socially responsible investment strategies in practice. In the final chapter, we examine the empirical validity of the CCAPM that assumes investor's utility is non-separable across states of nature. To our knowledge, it is the first to evaluate the cross-sectional implications of the recursive utility function of Epstein and Zin (1991) by using innovations in consumption growth. Based on these analyses, we conclude that a variable capturing innovations in consumption growth is significantly priced in asset returns.

Is Beta Dead? -- Reevaluation of Equity Returns in the US Diversified Financial Sector

Author : Ramesh Mohan
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Is Beta Dead? -- Reevaluation of Equity Returns in the US Diversified Financial Sector by : Ramesh Mohan

Download or read book Is Beta Dead? -- Reevaluation of Equity Returns in the US Diversified Financial Sector written by Ramesh Mohan and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the relation between equity returns and fundamental variables by utilizing multifactor asset pricing models. Specifically, it incorporates several variables from prior empirical research to examine the impact of systematic risk on equity returns in the financial sector. The empirical results show that the explanatory power of systematic risk varies by models, but a positive relationship between systematic risk and returns is consistent. At the same time, the study reveals a significant relationship between equity returns and market value, book-to-market equity, earnings yield, leverage factors, sales-to-price ratio, book value per share, and earnings per share.

An Empirical Analysis of Intertemporal Asset Pricing Models with Transaction Costs and Habit Persistence

Author : Wessel Marquering
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis An Empirical Analysis of Intertemporal Asset Pricing Models with Transaction Costs and Habit Persistence by : Wessel Marquering

Download or read book An Empirical Analysis of Intertemporal Asset Pricing Models with Transaction Costs and Habit Persistence written by Wessel Marquering and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In intertemporal asset pricing models, transaction costs are usually neglected. In this paper we explicitly incorporate transaction costs in these models and analyze to what extent this extension is helpful in explaining the cross-section of expected returns. An empirical analysis using CRSP data on size-based portfolios examines the role of the transaction costs and shows that incorporating such costs in the consumption-based model with power utility does not yield very satisfactory results. However, the introduction of habit persistence substantially improves the model. We find rather strong evidence of habit persistence in monthly consumption data. The plots of the models' pricing errors indicate that an intertemporal asset pricing model with transaction costs and habit persistence explains the cross-sectional variation in the portfolio returns quite accurately.