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Essays On Asset Pricing And The Horizon Effect
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Book Synopsis Essays on Asset Pricing and the Horizon Effect by : Chenglu Jin
Download or read book Essays on Asset Pricing and the Horizon Effect written by Chenglu Jin and published by . This book was released on 2018 with total page 167 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Selected Essays in Empirical Asset Pricing by : Christian Funke
Download or read book Selected Essays in Empirical Asset Pricing written by Christian Funke and published by Springer Science & Business Media. This book was released on 2008-09-15 with total page 123 pages. Available in PDF, EPUB and Kindle. Book excerpt: Christian Funke aims at developing a better understanding of a central asset pricing issue: the stock price discovery process in capital markets. Using U.S. capital market data, he investigates the importance of mergers and acquisitions (M&A) for stock prices and examines economic links between customer and supplier firms. The empirical investigations document return predictability and show that capital markets are not perfectly efficient.
Book Synopsis Essays in Asset Pricing by : Anthony Sanford
Download or read book Essays in Asset Pricing written by Anthony Sanford and published by . This book was released on 2018 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis has three separate goals: to provide a methodological framework for extracting risk-neutral densities from options prices, to extend the Recovery Theorem (RT) theoretically, and to apply the RT to firm decision making practices. The first chapter introduces a new model for estimating the risk-neutral density. Current estimation techniques use a single mathematical model to interpolate option prices on two dimensions: strike price and time-to-maturity (TTM). I demonstrate that, when we vary the interpolating methodology based on which dimension we are interpolating, it allows us to better extract market information. I use B-splines with at-the-money knots for the strike price interpolation and a function that depends on the option expiration horizon for the TTM interpolation. The results of this “hybrid” interpolation technique are particularly striking when compared to the common Ait-Sahalia and Lo benchmark in an application to the Recovery Theorem. My contribution is significant because it illustrates that different risk neutral density estimation techniques will reveal different market information and risk preferences. Hence, the accuracy of the density estimation is critical. In the second chapter, I redefine the prices derived in Ross's Recovery Theorem using a multivariate Markov chain rather than a univariate one. I employ a mixture transition distribution where the proposed states depend on the level of the S&P 500 index and its options' implied volatilities. I include volatility because the transition path between states depends on the propensity of an underlying asset to vary. An asset that is highly volatile is more likely to transition to a far-away state. These higher transition probabilities should lead to higher state prices. The multivariate method improves upon the univariate RT because the latter does not include the volatility inherent in the state transition, which makes its derived prices less precise. The multivariate RT produces forecast results far superior to the univariate RT. Using quarterly forecasts for the 1996-2015 period, the out-of-sample R-square of the RT increases from around 12% to 30%. Finally, in the third chapter, I answer the question: what effect does uncertainty about the aggregate economy have on investment, holding news shocks constant? Recent empirical studies have struggled to answer this question, as times of high economic uncertainty are typically also times of bad news. This chapter proposes a new methodology to measure and separate uncertainty and news shocks in stock return data. By using option prices to adjust abnormal returns for the time-varying risk premia, it is possible to estimate the impact of uncertainty shocks on firm investment while controlling for news shocks. Using quarterly data on public firms from 1996 to 2015, we find that uncertainty shocks systematically depress investment, even after controlling for bad news. Moreover, lumpy investments reinforce the negative effect of uncertainty on investment, while better management systematically attenuates this negative effect.
Book Synopsis Three Essays in Asset Pricing Theory by : Lionel Martellini
Download or read book Three Essays in Asset Pricing Theory written by Lionel Martellini and published by . This book was released on 2000 with total page 390 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Equilibrium Asset Pricing by : Aoxiang Yang (Ph.D.)
Download or read book Essays on Equilibrium Asset Pricing written by Aoxiang Yang (Ph.D.) and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation is developed to address unresolved issues in the asset pricing literature, focusing on both risk premium levels and dynamics. Chapter 1 addresses short-horizon risk premium dynamics. In the data, stock market volatility weakly or even negatively predicts short-run equity and variance risk premia, challenging positive risk-return trade-offs at the heart of leading asset pricing models. I show that a puzzling negative volatility-risk premia relationship concentrates in scattered high-uncertainty states, which occur about 20\% of the time. While at other times, the relationship is strongly positive. I develop a micro-founded learning model in which due to learning frictions investors underreact to structural breaks in high-volatility periods and overreact to transitory variance shocks in normal times. The model can successfully explain the novel time-varying volatility-risk premia relationship at short and long horizons. The model can further account for many other data features, such as a robust positive correlation between equity and variance risk premium, the leverage effect, and negative observations of equity and variance risk premia at the onsets of recessions. Chapter 2, coauthored with Professor Bjorn Eraker, focuse on equilibrium derivatives pricing. It is motivated by the observation that leading asset pricing models typically can not explain the levels or dynamics of VIX options prices. We develop a tractable equilibrium pricing model to explain observed characteristics in equity returns, VIX futures, S\&P 500 options, and VIX options data based on affine jump-diffusive state dynamics and representative agents endowed with Duffie-Epstein recursive preferences. A specific model aimed at capturing VIX options prices and other asset market data is shown to successfully replicate the salient features of consumption, dividends, and asset market data, including the first two moments of VIX futures returns, the average implied volatilities in SPX and VIX options, and first and higher-order moments of VIX options returns. In the data, we document a time variation in the shape of VIX option implied volatility and a time-varying hedging relationship between VIX and SPX options which our model both captures. Our model also matches many other asset pricing moments such as equity premia, variance risk premia, risk-free interest rates, and short-horizon return predictability. To derive our specific model, we first develop a general framework for pricing assets under recursive Duffie-Epstein preferences with IES set to one under the assumption that state variables follow affine jump diffusions, as in \citet{DPS00}. Relative to the literature, our framework has a clear marginal contribution that it is an endowment-based equilibrium model with (i) clearly stated affine state variable dynamics and (ii) precisely characterized equilibrium value function, risk-free rate, prices of risks, and risk-neutral state dynamics. We prove our state-price density is a precise $IES\to1$ limit of that approximately solved in \citet{ErakShal08}. The recursive preference assumption implies that higher-order conditional moments of the economic fundamental, such as its growth volatility and volatility-of-volatility, are explicitly priced in equilibrium. Since VIX derivatives depend on these factors, this in turn implies that the former carry non-zero risk premia.
Book Synopsis Three Essays on the Effect of Learning and Predictability on Optimal Dynamic Portfolio Strategies and Asset Prices by : Yihong Xia
Download or read book Three Essays on the Effect of Learning and Predictability on Optimal Dynamic Portfolio Strategies and Asset Prices written by Yihong Xia and published by . This book was released on 2000 with total page 418 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Asset Pricing, Portfolio Choice and Behavioral Finance by : Ehud Peleg
Download or read book Three Essays on Asset Pricing, Portfolio Choice and Behavioral Finance written by Ehud Peleg and published by ProQuest. This book was released on 2008 with total page 356 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Two Essays on Asset Pricing by : Jungshik Hur
Download or read book Two Essays on Asset Pricing written by Jungshik Hur and published by . This book was released on 2007 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two chapters. The first chapter shows that the measurement errors in betas for stocks induce corresponding measurement errors in alphas and a spurious negative covariance between the estimated betas and alphas across stocks. This negative covariance between the estimated betas and alphas results in a violation of the independence assumption between the independent variable (betas) and error terms in the Fama-MacBeth regressions of tests of the CAPM, thereby creating a downward bias in the estimated market risk premiums. The procedure of using portfolio returns and betas does not necessarily eliminate this bias. Depending upon the grouping variable used to form portfolios, the negative covariance between estimated betas and alphas can be increased, decreased, and can even be made positive. This paper proposes two methods for correcting the downward bias in the estimated market risk premium. The estimated market risk premiums are consistent with the CAPM after the proposed corrections.
Book Synopsis Essays in Asset Pricing and International Finance by : Mary Tian
Download or read book Essays in Asset Pricing and International Finance written by Mary Tian and published by . This book was released on 2011 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters in asset pricing and international finance. In Chapter 1, I examine the effect of tradability, the proportion of a firm's output that is exported, on its stock returns. The empirical patterns are consistent with the adjustment of the relative price of tradable to non-tradable goods, due to endowment shocks. I find firms that produce tradable goods have asset returns and earnings that are twice as cyclical as firms that produce non-tradable goods. A tradable minus nontradable portfolio of stock returns can predict changes in real exchange rates and the relative quantity of exports. A two-country endowment economy model formalizing the relative price mechanism is able to match the empirical facts. In Chapter 2, joint with Leonid Kogan and Roberto Rigobon, we take an openeconomy perspective on consumption growth predictability. We find that the combination of the U.S. and the world real interest rates predicts U.S. consumption growth. Predictability is highly significant, both statistically and economically, and is strongest at horizons of two to three years. The growth rate of consumption of services is more predictable than the growth rate of consumption of nondurable goods. We interpret this evidence using a two-country equilibrium exchange economy model and conclude that the predictive relation between interest rates and consumption growth is likely generated by output shocks in the non-tradable good sector. In Chapter 3, joint with Leonid Kogan, we examine the effects of data snooping on the performance of linear factor models at explaining asset pricing anomalies. We gather 22 anomalies established in the literature and create three-factor models from sorting firms into portfolios with respect to these anomalies. From 1950-2007, half of the factor models we construct can explain 31% or more of anomalies. In comparison, the CAPM and Fama French models rank in the 20th and 40th percentile of models respectively. Factors constructed from sorting by external financing characteristics (net stock issues and composite issuance) are able to explain a large proportion of anomalies. None of the models are able to explain momentum.
Book Synopsis Essays on Empirical Asset Pricing Via Machine Learning by : Gerrit Liedtke
Download or read book Essays on Empirical Asset Pricing Via Machine Learning written by Gerrit Liedtke and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Empirical Asset Pricing with Machine Learning by : Felix Kempf
Download or read book Essays in Empirical Asset Pricing with Machine Learning written by Felix Kempf and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Asset Pricing by : Xin Wang
Download or read book Essays on Asset Pricing written by Xin Wang and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters that empirically investigate issues pertaining to asset pricing. In the first chapter, I find evidence of return predictability across intra-industry trading partners in international financial markets. Stock returns of importers significantly predict returns of corresponding exporters at the country-industry level. An investment strategy exploiting this effect generates average abnormal returns exceeding 6% annually. The magnitude of the effect is larger for smaller and less financially sophisticated countries, consistent with the return predictability being driven by frictions in the speed of information diffusion. However, this return cross-predictability cannot be explained by other country characteristics, including capital controls, exchange rate risk, and proxies for investor attention at the aggregate level. The second chapter analyzes the role of distance between foreign countries and the U.S. and foreign countries' talent in foreign mutual funds' performance in the U.S. I find that the correlation of distance and talent with returns is negative and positive, respectively. However, the effects are small and not statistically significant. For volatility, the effects are both economically and statistically significant: Distance is positively correlated with returns' standard deviation among mutual funds and with returns' standard deviation over time, while talent is negatively correlated with returns' standard deviation over time. The third chapter, co-authored with Jordi Mondria and Thomas Wu, decomposes attention allocation into two components, the familiar and the surprising, with opposite implications for US purchases of foreign stocks. On the one hand, familiarity-induced attention leads to an increase in US holdings of foreign equities. On the other hand, surprise-induced attention is associated with the net selling of foreign stocks because US investors tend to pay more attention to negative than to positive economic surprises from foreign countries. Our findings suggest that information asymmetries between locals and non-locals are more pronounced when it comes to good news, with information regarding bad news being relatively symmetric.
Book Synopsis Essays on Asset Pricing and Financial Institutions by : Patrick Christian Kiefer
Download or read book Essays on Asset Pricing and Financial Institutions written by Patrick Christian Kiefer and published by . This book was released on 2018 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasts of risk prices at alternative time scales can be used to consolidate history dependence in asset return time series. The resulting Markovian structure identifies a martingale component in the latent transition dynamics. I apply the model to U.S. stock markets and find the concentration of return volatility on the martingale component - the spectral gap - is countercyclical, and predicts annual market returns out-of-sample (o.o.s.) with an R-squared of 10.8%. Value (HML) predictability is concave and front-heavy, peaking at a one-year 14.7% o.o.s. R-squared. In contrast, the momentum predictability term structure is convex, insignificant on the short end, but accelerates to 31.4% o.o.s. R-squared at the three-year horizon. I form timing portfolios to investigate the risk content of the aggregate forecasts. Incremental gains from timing value are compensation for bearing systematic shocks to time-varying expected returns. Exposure to the market timing portfolio is cross-sectionally priced, while gains from timing size (SMB) are not. The findings provide new restrictions for parametric asset pricing theories. Incomplete human capital markets induce unexpected rebalancing costs that are mitigated by a bank. Ex-ante, the bank exchanges risky endowments for demandable liabilities. An ex-post withdrawal corresponds to exercising a put option on the market, used to resolve an unexpected portfolio choice problem. Portfolio choice opens a risk aversion channel that distinguishes our predictions from Diamond and Dybvig (1983) and related models. In these models, deposits resolve consumption-timing tensions by accommodating the investor's intertemporal elasticity of substitution (IES). The inclusion of risk-based incentives allow us to characterize the endogenous link between the intermediary balance sheet and the preference-based pricing kernel. Moreover, ex-post rebalancing incentives relax enforcement problems for ex-ante optimal policies in incomplete markets. This provides a justification for the coexistence of intermediation and market institutions.
Book Synopsis Essays on Empirical Asset Pricing, Dynamic Asset Allocation, and Contagion Effects by : Marius Ascheberg
Download or read book Essays on Empirical Asset Pricing, Dynamic Asset Allocation, and Contagion Effects written by Marius Ascheberg and published by . This book was released on 2013 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Empirical Asset Pricing by : Chishen Wei
Download or read book Essays on Empirical Asset Pricing written by Chishen Wei and published by . This book was released on 2011 with total page 170 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains two essays that use empirical techniques to shed light on open questions in the asset pricing literature. In the first essay, I investigate whether foreign institutional investors affect stock liquidity in domestic equity markets. The evidence indicates that stocks with higher foreign institutional ownership subsequently experience higher liquidity. However, it is difficult to interpret the causal relation of this finding because institutional investors self-select into more liquid stocks. To solve this problem, I exploit a provision in the 2003 US dividend tax cut which extends tax-relief to dividends from US tax-treaty countries but not to dividends from non-treaty countries. This natural experiment suggests a causal link between foreign institutional investors and liquidity. Consistent with the predictions of theoretical models, I find that liquidity improves due to foreign institutional investors increasing information competition. In the second essay, I introduce a new measure of difference of opinion using mutual fund portfolio weights to test prominent competing theories of the effect of heterogeneous beliefs on asset prices. The over-valuation theory (Miller (1977)) proposes that in the presence of short-sale constraints stock prices reflects only the view of optimistic investors which implies lower subsequent returns. Alternatively, neo-classical asset pricing models (Williams (1977), Merton (1987)) suggest that differences of opinions indicate high levels of information uncertainty or risk which implies higher expected returns. My initial result finds no support for the over-valuation theory. Instead, the measure used in this study finds that high differences of opinion stocks weakly outperform low differences of opinion stocks by 2.42% annually which is more consistent with the information uncertainty explanation.
Book Synopsis Essays on Asset Pricing and Portfolio Optimization by : Christian Koeppel
Download or read book Essays on Asset Pricing and Portfolio Optimization written by Christian Koeppel and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: WThis doctoral thesis focuses on the effects of investor sentiment on asset pricing and the challenges of portfolio optimization under parameter uncertainty. The first essay "Sentiment risk premia in the cross-section of global equity" applies a recently developed sentiment proxy to the construction of a new risk factor and provides a comprehensive understanding of its role in sentiment-augmented asset pricing models for international equity indices. We empirically demonstrate the existence of a statistically significant and economically relevant sentiment premium. Differentiating between developed and emerging markets we reveal different patterns of return reversals / persistence. Our results contribute to the explanation of global cross-sectional average excess returns, demonstrating superiority in terms of predictive power when compared to competing definitions of sentiment. The second essay "Does social media sentiment matter in the pricing of U.S. stocks?" finds that the inclusion of micro-grounded, social media-based sentiment significantly improves the performance of the five-factor model from Fama and French (2015, 2017). This holds for different industry and style portfolios such as size, value, profitability, and investment. Applying a robust GMM estimator, the sentiment risk premium provides the missing component in the behavioral asset pricing theory of Shefrin and Belotti (2008) and (partially) resolves the pricing puzzles of small extreme growth, small extreme investment stocks and small stocks that invest heavily despite low profitability. The third essay "Diversifying estimation errors: An efficient averaging rule for portfolio optimization" proposes a combination of established minimum-variance strategies to minimize the expected out-of-sample variance. The proposed averaging rule overcomes the strategy selection problem and diversifies estimation errors of the strategies included in our rule. Extensive simulations show that the contributions of estimation errors to the out-of-sample variances are uncorrelated between the considered strategies. We therefore conclude that averaging over multiple strategies offers sizable diversification benefits.
Book Synopsis Essays in Asset Pricing by : Marco Grotteria
Download or read book Essays in Asset Pricing written by Marco Grotteria and published by . This book was released on 2019 with total page 346 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the third chapter, Follow the money, I study the effect of firm lobbying on risk and expected returns. I develop a game-theoretic asset pricing model in which firms lobby to gain or preserve monopolistic rents. The model has four key predictions. First, differences in expected returns are the equilibrium outcome of the strategic interaction among firms, and returns are higher for firms that lobby more. Second, firms that lobby more exhibit larger return volatility. Third, lobbying is less intense in more competitive industries. Fourth, and finally, firms in these industries tend to lobby in coalitions. Congressional data on lobbying spending support the model's implications.