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Essays On Consumption And Asset Pricing Puzzles
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Book Synopsis Essays on Consumption and Asset Pricing Puzzles by :
Download or read book Essays on Consumption and Asset Pricing Puzzles written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contributes to the literature on the consumption-portfolio choice under uncertainty and is motivated by several empirical failures of the standard consumption-based capital asset pricing model (CCAPM). This canonical model has proven disappointing empirically and has even been questioned whether it is theoretically valuable and practically useful even if it is in some sense the only model we have. The frustration is due to that the model performs no better in practice and generates some well-known consumption puzzles and asset pricing puzzles. The purpose of the thesis is to reexamine these puzzles and then to resolve them. After the debate of Hansen and Singleton (1983) and Hall (1988), the estimates of the elasticity of intertemporal substitution (EIS) of consumption in a representative agent model have not resulted in any consensus. Based on this observation, the first chapter of this thesis is focused on resolving the elasticity puzzle or the unresponsiveness to interest rates. We propose a new theoretical and empirical perspective on the relationship between consumption growth and asset returns. In the spirit of Hansen and Singleton (1983), we demonstrate that observed growth rate of consumption responds not only to a specific asset return but also to other asset returns. Empirically, US postwar quarterly data are used to fit the regression model derived in the chapter, and the sample period is 1953Q2-2001Q2. Empirical results show that the EIS is greater than 0.1, the maximum value considered possible by Hall (1988). Accordingly, we argue that there is no elasticity puzzle in the standard representative agent model. The second chapter provides an explanation for the puzzle of excess sensitivity of consumption to expected income proposed by Flavin (1981). We exploit consumer's superior information (i.e., windfalls in investments and in income) to integrate the consumption Euler equations into a generalized Euler equation. The implications emerging f.
Book Synopsis Essays on Asset Pricing Puzzles by : Federico Gavazzoni
Download or read book Essays on Asset Pricing Puzzles written by Federico Gavazzoni and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Consumer Behavior and Asset Prices by : Jeon-Hyeok Cho
Download or read book Three Essays on Consumer Behavior and Asset Prices written by Jeon-Hyeok Cho and published by . This book was released on 1991 with total page 282 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Money and Asset Pricing by :
Download or read book Three Essays on Money and Asset Pricing written by and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Consumption-based Asset Pricing Models by : Hugo Alejandro Garduño Arredondo
Download or read book Essays in Consumption-based Asset Pricing Models written by Hugo Alejandro Garduño Arredondo and published by . This book was released on 2008 with total page 324 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Asset Pricing, Consumption and Wealth by : Qi Li
Download or read book Essays on Asset Pricing, Consumption and Wealth written by Qi Li and published by . This book was released on 2004 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Asset Pricing with Stochastic Discount Factors by : St?phane Chr?tien
Download or read book Essays on Asset Pricing with Stochastic Discount Factors written by St?phane Chr?tien and published by LAP Lambert Academic Publishing. This book was released on 2012-02 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many financial models are evaluated using the stochastic discount factor (SDF) approach because of its simplicity, flexibility and universality. The two essays of this work exploit these characteristics to re-examine two long-standing asset pricing topics: consumption-based and performance measurement models. The first essay develops a methodology to understand and compare the sources of pricing errors in models based on SDF moments. The method allows a new investigation of preference-based explanations of the risk-free rate, term premium and risk premium puzzles. The second essay presents a method to measure performance evaluation by developing bounds on admissible performance measures that are free from inference errors. The bounds are furthermore used in ranking mutual funds and as a diagnostic instrument for evaluating candidate performance measures. Each essay carefully establishes the empirical relevancy of the proposed methodologies. These extensions of the SDF framework provide important new insights and have numerous finance applications for academic researchers and practitioners.
Book Synopsis Essays on Empirical Asset Pricing and Under-investment Puzzle by : Dongna Zhang
Download or read book Essays on Empirical Asset Pricing and Under-investment Puzzle written by Dongna Zhang and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Volatility Risk, Asset Returns and Consumption-based Asset Pricing by : Young Il Kim
Download or read book Essays on Volatility Risk, Asset Returns and Consumption-based Asset Pricing written by Young Il Kim and published by . This book was released on 2008 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: My dissertation addresses two main issues regarding asset returns: econometric modeling of asset returns in chapters 2 and 3 and puzzling features of the standard consumption-based asset pricing model (C-CAPM) in chapters 4 and 5. Chapter 2 develops a new theoretical derivation for the GARCH-skew-t model as a mixture distribution of normal and inverted-chi-square in order to represent the three important stylized facts of financial data: volatility clustering, skewness and thick-tails. The GARCH-skew-t is same as the GARCH-t model if the skewness parameter is shut-off. The GARCH-skew-t is applied to U.S. excess stock market returns, and the equity premium is computed based on the estimated model. It is shown that skewness and kurtosis can have significant effect on the equity premium and that with sufficiently negatively skewed distribution of the excess returns, a finite equity premium can be assured, contrary to the case of the Student t in which an infinite equity premium arises. Chapter 3 provides a new empirical guidance for modeling a skewed and thick-tailed error distribution along with GARCH effects based on the theoretical derivation for the GARCH-skew-t model and empirical findings on the Realized Volatility (RV) measure, constructed from the summation of higher frequency squared (demeaned) returns. Based on an 80-year sample of U.S. daily stock market returns, it is found that the distribution of monthly RV conditional on past returns is approximately the inverted-chi-square while monthly market returns, conditional on RV and past returns are normally distributed with RV in both mean and variance. These empirical findings serve as the building blocks underlying the GARCH-skew-t model. Thus, the findings provide a new empirical justification for the GARCH-skew-t modeling of equity returns. Moreover, the implied GARCH-skew-t model accurately represents the three important stylized facts for equity returns. Chapter 4 provides a possible solution to asset return puzzles such as high equity premium and low riskfree rate based on parameter uncertainty. It is shown that parameter uncertainty underlying the data generating process can lead to a negatively skewed and thick-tailed distribution that can explain most of the high equity premium and low riskfree rate even with the degree of risk aversion below 10 in the CRRA utility function. Chapter 5 investigates a possible link between stock market volatility and macroeconomic risk. This chapter studies why U.S. stock market volatility has not changed much during the "great moderation" era of the 1980s in contrast to the prediction made by the standard C-CAPM. A new model is developed such that aggregate consumption is decomposed into stock and non-stock source of income so that stock dividends are a small part of consumption. This new model predicts that the great moderation of macroeconomic risk must have originated from declining volatility of shocks to the relatively large non-stock factor of production while shocks to the relatively small stock assets have been persistently volatile during the moderation era. Furthermore, the model shows that the systematic risk of holding equity is positively associated with the stock share of total wealth.
Book Synopsis Two Essays on Asset Pricing and Asset Choice by : James Eric Gunderson
Download or read book Two Essays on Asset Pricing and Asset Choice written by James Eric Gunderson and published by . This book was released on 2004 with total page 336 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Consumer Preferences and Asset Pricing by : John Qi Zhu
Download or read book Essays in Consumer Preferences and Asset Pricing written by John Qi Zhu and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Heterogeneity, Insurance, and Asset Pricing by : Tsvetanka Karagyozova
Download or read book Three Essays on Heterogeneity, Insurance, and Asset Pricing written by Tsvetanka Karagyozova and published by . This book was released on 2007 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Asset Pricing by : Ji Zhou
Download or read book Three Essays on Asset Pricing written by Ji Zhou and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays. In the first essay, we derive a pricing kernel for a continuous-time long-run risks (LRR) economy with the Epstein-Zin utility function, non-i.i.d. consumption growth, and incomplete information about fundamentals. In equilibrium, agents learn about latent conditional mean of consumption growth and price equity simultaneously. Since the pricing kernel is endogenous and affected by learning, uncertainty about unobserved conditional mean of consumption growth affects risk prices corresponding to shocks in both consumption and dividend growth. We demonstrate our analytical results by applying the model to a profitability-based equity valuation model proposed by Pastor and Veronesi (2003). Calibration of the model demonstrates that the LRR model with learning has potential to fit levels of price-dividend ratios of the S&P 500 Composite Index, equity premium, and the short term interest rate simultaneously. In essay two, we extend the LRR model with incomplete information proposed in essay one by incorporating inflation and applying the model to the valuation of nominal term structure of interest rate. We estimate the processes of state variables and latent variables using a Bayesian Markov-Chain Monte Carlo method. In the estimation, we rely only on the information in macro-economic data on aggregate consumption growth, inflation, and dividend growth on S&P 500 Composite Index. In this way, parameters and latent state variables are estimated outside the model. Estimation results suggest a mildly persistent LRR component. However, both real and nominal yield curves implied by the LRR model are downward-sloping. We show that the inverted yield curve is due to a negative risk premium, which is determined jointly by covariance between shocks in state variables and shocks in the nominal pricing kernel. Incorporating learning about the mean consumption growth flattens the yield curve but does not change the sign of the yield curve slope. In essay three, we study the critique of the conditional affine factor asset pricing models proposed by Lewellen and Nagel (2006). They suggest that two important economic constraints are overlooked in cross-sectional regressions. First, the estimated unconditional slope associated with a risk factor should equal the average risk premium on that factor in a conditional model. Second, the estimated slope associated with the product of a risk factor and an instrument should be equal to the covariance of the factor risk premium with the instrument. We test both constraints on conditional models with time-varying betas and our results confirm the proposition. Also, from the functional relationship between conditional and unconditional betas, we identify an unconditional constraint on unconditional betas for time-varying beta models and develop a testing procedure subject to this constraint. We show that imposing this unconditional constraint changes estimates of unconditional betas and risk prices significantly.
Book Synopsis Three Essays on Microfoundations of Economics by : Gaosheng Ju
Download or read book Three Essays on Microfoundations of Economics written by Gaosheng Ju and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, which consists of three essays, studies three applications. Each of them emphasizes the microfoundations of economic models. The first essay proposes a nonparametric estimation of structural labor supply and exact welfare change under nonconvex piecewise-linear budget sets. Different from previous literature, my method focuses on a nonparametric specification of an indirect utility function. I find that working with the indirect utility function is very useful in simultaneously addressing the labor supply problems with individual heterogeneity, nonconvex budget sets, labor nonparticipation, and measurement errors in working hours that previous literature was unable to. Further, the estimated indirect utility function proves to be convenient and efficient in calculating exact welfare change and deadweight loss under general piecewise-linear budget sets. In the second essay, I solve the equity premium, risk-free rate, and capital structure puzzles by laying a more solid microfoundation for consumption-based asset pricing models. I argue that the above two asset pricing puzzles arise from the aggregation of hump-shaped life-cycle consumption into per capita consumption, which accounts for the unanimous rejections of Euler equations in the literature. As for the third puzzle, I show that a firm's capital structure can be determined by heterogenous investors maximizing life-time utility even though the capital structure is irrelevant on the firm side. The endogenously determined leverage generates an even larger equity premium than a fixed one. The third essay studies the solution concepts of coalition equilibrium. Traditional solution concepts such as Strong Nash Equilibrium, Coalition-proof Nash Equilibrium, Largest Consistent Set, and Coalition Equilibrium violate the fundamental principles of individual rationality. I define a new solution concept, Weak Coalition Equilibrium, which requires each coalitional deviation to be within-coalition self-enforceable and cross-coalition self-enforceable. The cross-coalition self-enforceability endows coalitions with farsightedness. Weak Coalition Equilibrium is a generalization of Coalition-proof Nash Equilibrium and a refinement of the concept Nash Equilibrium. It exists under a weak condition. Most importantly, it is in line with the principle of individual rationality.
Book Synopsis Essays on consumer preferences and asset pricing by : John Qi Zhu
Download or read book Essays on consumer preferences and asset pricing written by John Qi Zhu and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on International Asset Pricing and Business Cycles by : Jaroslav Horvath
Download or read book Essays on International Asset Pricing and Business Cycles written by Jaroslav Horvath and published by . This book was released on 2016 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation analyzes business cycles and international asset pricing under disaster risk. In the first chapter, I use annual consumption and financial data for 31 countries over 140 years and I document that developing countries exhibit a more volatile consumption and a significantly larger equity premium. By employing a Bayesian Markov Chain Monte Carlo approach, I estimate an empirical model of macroeconomic disasters - low-probability events with disastrous consequences such as the Great Depression - in developing and high-income countries. I find that developing countries have a higher overall probability of entering a disaster and that they are also much more likely to enter an individual disaster such as a sovereign debt crisis. Disasters in high-income countries are shown to be shorter, on average, but more severe and uncertain. Group heterogeneity in disaster parameters allows me to generate a substantial equity premium for both groups of countries. Disaster contagion plays a vital role in explaining the equity premium puzzle for high-income countries. The model-simulated correlations of equity premium within each group of countries are qualitatively in line with data. The second chapter provides evidence that the U.S. stock market returns not only exhibit large negative skewness, but that they also provide poor payoffs during deep consumption recessions. Using out-of-the-money S&P 500 index options, I obtain a hedged risk premium and show that the hedged risk premium captures the equity risk premium during normal times. I isolate the disaster risk premium as the difference between the total equity risk premium and the hedged risk premium. In addition, I illustrate that the risk premium due to disasters explains about eighty percent of the total equity risk premium. In the cross-section of stock returns, I find that stocks that are more negatively related to the disaster risk premium yield considerably higher subsequent returns. However, this finding is not robust to adjusting for Fama-French price factors. I also find a little predictive power of the disaster risk premium with respect to the aggregate stock market returns due to the lack of autocorrelation in the disaster risk premium. The third chapter recognizes the importance of a large informal economy for business cycles in emerging countries. I show that a two-sector real business cycle model of a small open economy with a poorly measured informal sector, Cobb-Douglas utility function, and country spread fluctuations accounts for the low volatility of hours worked and large relative volatility of consumption to output in emerging countries. Due to the non-separability between consumption and labor supply, the model cannot explain the countercyclical real interest rates and trade balance that prevail in developing countries. The results suggest that GHH preferences are necessary to generate countercyclical real interest rates and trade balance in a neoclassical setting with working capital constraint and exogenous movements in real interest rates.
Book Synopsis Essays on Asset Pricing by : Amadeu DaSilva
Download or read book Essays on Asset Pricing written by Amadeu DaSilva and published by . This book was released on 2007 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter 2 introduces habit formation into the OLG model framework of Constantinides, Donaldson, and Mehra (2002) with three age cohorts. Interestingly, this OLG setup with three generations allows us to separate and independently study the effects of the two habit parameters on savings, security returns, and equity premium. The model easily matches the 6 percent equity premium. Moreover, the effective risk aversion is small unlike many previous habit models.
