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Essays On The Asset Pricing Anomalies
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Book Synopsis Essays on the Asset Pricing Anomalies by : Kyungyeon (Rachel) Koh
Download or read book Essays on the Asset Pricing Anomalies written by Kyungyeon (Rachel) Koh and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation aims to shed light on the source of the asset pricing anomalies by investigating behavioral and rational explanations. The first essay, "Asset Efficiency and the Asset Growth Anomaly," examines the source of the asset growth anomaly. I present findings that the anomaly is driven by inefficient firms, which support the behavioral hypothesis that investors on average underreact to some firms' overexpansion. Firms with past records of high asset efficiency relative to their industry peers do not suffer lower stock performance following high growth. The overarching impact of asset efficiency shows that firm skill is highly relevant, for effective corporate strategy should balance growth with capability to maintain and profit from that growth. The next chapter, "Do Financing Costs Matter for the Investment Anomalies?" shows supporting evidence for a shared role of behavioral and rational elements in explaining the anomalies. It comprehensively evaluates whether firms' financing constraints explain the investment anomalies, including the asset growth anomaly, incorporating advanced proxies for financing constraints. The main contribution is to demonstrate that both mispricing and investment-friction channels reinforce each other in explaining the negative investment-return relation. The third chapter, "Style Investing: New Evidence from Mutual Fund Flows," empirically validates the style-investing behavior of mutual fund investors and explores the pricing implication for stocks by utilizing mutual fund flows. Barberis and Shleifer (2003) initially explore the idea of style investing with an assumption that investors choose styles based on the recent past style performance. I find evidence that mutual fund investors allocate to winner styles and withdraw from loser styles based on the recent past style performance, consistently with Barbaris and Shleifer's assumption. Next, I examine the pricing implications of the mutual fund flows by style. The evidence shows the Granger-causality of the style flows and the underlying stock returns in both directions. Neither the rationalists nor the behavioralists have been able to comprehensively explain all of financial market dynamics. This thesis urges the current asset pricing research to stay open-minded to consider various possibilities and viewpoints and be prepared to come up with narratives not confined to a single set of theory.
Book Synopsis Essays in Asset Pricing Anomalies by :
Download or read book Essays in Asset Pricing Anomalies written by and published by . This book was released on 2014 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Asset Pricing Anomalies by : Quan Wen
Download or read book Essays on Asset Pricing Anomalies written by Quan Wen and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Two Essays on Asset Pricing Anomalies by : Che Kuan Chen
Download or read book Two Essays on Asset Pricing Anomalies written by Che Kuan Chen and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the impact of mutual funds in the cross-sectional stock returns and examines a conflict in the existing literature that characterizes momentum. In the first essay, I examine the explanatory power of aggregate mutual fund flows for the profitability of price-based (i.e., momentum and 52-week high) and non-price-based (i.e., earnings surprises, profitability, share issuance, accrual and asset growth) anomalies in the cross-section of returns. I find that the flow-based trading of mutual funds contributes to mispricing as measured by the profits to price-based anomalies, especially at times when market-wide funding costs are high. The effect also exists for non-price-based anomalies, but only through the dependence of their profits on momentum. My findings support the view of Lou (2012) and Vayanos and Woolley (2013) that mutual funds’ trading on flows creates feedback that strengthens price-based anomalies, as high-performing funds buy additional shares of high-performing stocks and poorly performing funds sell shares of poorly performing stocks. However, the explanatory power of aggregate mutual fund flows for price-based anomaly returns is only partly attenuated by fund-level variables designed to capture the feedback effect. The flow-induced trading by mutual funds appears to contribute to mispricing for reasons beyond the feedback effect. The second essay examines the extent to which momentum profits depend on the state of credit markets. The state of credit markets does affect momentum, but the results are not consistent with a credit channel effect on momentum. For non-financial firms, the momentum profits are stronger among portfolios formed under favorable credit conditions. For financial firms, credit conditions do not matter to the momentum profits. Price continuations in financial firms are related to whether the firms are performing poorly, but not whether that performance is attributable to credit conditions that are favorable or poor.
Book Synopsis Essays on International Asset Pricing Anomalies by : Ching-Chih Lu
Download or read book Essays on International Asset Pricing Anomalies written by Ching-Chih Lu and published by . This book was released on 2005 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Asset Pricing Anomalies by : Serena Frazzoni
Download or read book Essays in Asset Pricing Anomalies written by Serena Frazzoni and published by . This book was released on 2006 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Measuring Asset Pricing Anomalies by : Michael Gorman
Download or read book Essays on Measuring Asset Pricing Anomalies written by Michael Gorman and published by . This book was released on 2016 with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional methods of measuring asset pricing anomalies have historically relied on full sample tests of static parameters. With the increase of computational power and data available we are able to allow for time varying factor loadings for a portfolio based on asset rotation and also time varying factors by asset. In the first paper we find that commonly used estimates of time varying asset pricing anomalies contain significant bias. We are able to show that the historical returns used to select momentum portfolios result in biased data in the short window asset level regressions which the literature uses to estimate portfolio parameters. This is caused through a non-random selection criterion which systematically chooses high epsilon assets. These nonrandom epsilons, when regressed upon bias estimates of alpha, and through the correlation structure of the parameters they also bias the estimates of beta. We present a new methodology that is not subject to this bias, and allows for an accurate measurement of the size of anomalies. In executing this we find that inefficient portfolio rotation in the original portfolio level estimates is also indicative of bias. As such we suggest that the new methodology we propose is more accurate and less susceptible to bias than those currently in use in the literature. The new model suggests that to this point the risk adjusted returns of the momentum portfolio have been underestimated in the literature. In the second paper we demonstrate that the momentum anomaly is driven by a small number of assets in the market using our new model and the methodology of False Discovery Rates. We show that these assets, behave differently in long and short portfolios, and also perform differently during the first month reversal period. Finally we demonstrate that an appropriately risk adjusted momentum alpha shows that extreme months are not sufficient to explain away momentum, and that poor returns in extreme months are overstated by traditional methods of measuring momentum. To this extent we claim that market downturns in the last 15 years have been insufficient to effectively eliminate the momentum anomaly as has been suggested.
Book Synopsis Essays in Asset Pricing by : Michael Shane O'Doherty
Download or read book Essays in Asset Pricing written by Michael Shane O'Doherty and published by . This book was released on 2011 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a variety of test portfolios, the optimal pool of models consistently outperforms the best individual model on both statistical and economic grounds.
Book Synopsis Two Essays on Asset Pricing by : Xiaofei Zhao
Download or read book Two Essays on Asset Pricing written by Xiaofei Zhao and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Asset Pricing Anomalies, Investor Overreaction, and Mutual Fund Performance by : Hong Zhang
Download or read book Three Essays on Asset Pricing Anomalies, Investor Overreaction, and Mutual Fund Performance written by Hong Zhang and published by . This book was released on 2004 with total page 197 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Empirical Asset Pricing by : John Robert Vogel
Download or read book Essays on Empirical Asset Pricing written by John Robert Vogel and published by . This book was released on 2014 with total page 242 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes three essays of empirical asset pricing. In the first essay, The Value/Growth Anomaly and Hard to Value Firms, I show that combining quality signals (firm fundamentals) and hard to value measures increases the return spread between value and growth portfolios. A portfolio that is long high quality value firms that are hard to value and short low quality growth firms that are hard to value yields a 4-factor alpha of up to 1.41% per month. Second, ex-ante observed quality signals are better at predicting high performance and low performance growth stocks as compared to value stocks. This growth stock mispricing can be explained by extreme quality measures, and enhanced by focusing on hard to value growth firms. In the second essay, Using Maximum Drawdowns to Capture Tail Risk, I, along with my co-author Wesley R. Gray, propose the use of maximum drawdown, the maximum peak to trough loss across a time series of compounded returns, as a simple method to capture an element of risk unnoticed by linear factor models: tail risk. Unlike other tail-risk metrics, maximum drawdown is intuitive and easy-to-calculate. We look at maximum drawdowns to assess tail risks associated with market neutral strategies identified in the academic literature. Our evidence suggests that academic anomalies are not anomalous: all strategies endure large drawdowns at some point in the time series. Many of these losses would trigger margin calls and investor withdrawals, forcing an investor to liquidate. In the third essay, Analyzing Valuation Measures: A Performance Horse Race over the Past 40 Years, I, along with my co-author Wesley R. Gray, show that EBITDA/TEV has historically been the best performing valuation metric and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market. We also explore the investment potential of long-term valuation ratios, which replaces one-year earnings with an average of long-term earnings. In contrast to prior empirical work, we find that long-term ratios add little investment value over standard one-year valuation metrics.
Book Synopsis The Market Anomaly "Size Effect". Literature Review, Key Theories and Empirical Methods by : Arthur Ritter
Download or read book The Market Anomaly "Size Effect". Literature Review, Key Theories and Empirical Methods written by Arthur Ritter and published by GRIN Verlag. This book was released on 2015-06-02 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2014 in the subject Business economics - Business Management, Corporate Governance, grade: 16 (1,7), University of St Andrews (School of Management), course: Research Methods for Finance and Management, language: English, abstract: The size effect is a market anomaly in asset pricing according to the market efficiency theory. According to the current body of research, market anomalies arise either because of inefficiencies in the market or the underlying pricing model must be flawed. Anomalies in the financial markets are typically discovered form empirical tests. These tests usually rely jointly on one null hypothesis H0= markets are efficient AND they perform according to a specified equilibrium model (usually CAPM). Thus, if the empirical study rejects the H0, the reason could either be due to market inefficiency or due to the incorrect model. Market efficiency theory says that the price of an asset fully reflects all current information and is not predictable (Fama 1970). Fama (1997) states that market anomalies, even long‐term anomalies, are not an indicator for market inefficiencies due to the reason that they randomly split between “underreaction and overreaction, (so) they are consistent with market efficiency” (p. 284), they happen by chance and it is always possible to beat the market by chance. This essay will give an overview of the literature of the size effect and will stress the key theories, empirical methods and findings, as well as the existing body of research about this particular anomaly.
Book Synopsis Essays in Cross-sectional Asset Pricing by : Scott Hogeland Cederburg
Download or read book Essays in Cross-sectional Asset Pricing written by Scott Hogeland Cederburg and published by . This book was released on 2011 with total page 193 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical evidence broadly supports our model's predictions, as higher dispersion, idiosyncratic volatility, and credit risk firms display lower exposure to long-run risk along with higher firm-specific risk. Lastly, in the third chapter, we examine asset-pricing anomalies at the firm level. Portfolio-level tests linking CAPM alphas to a large number of firm characteristics suggest that the CAPM fails across multiple dimensions. There are, however, concerns that underlying firm-level associations may be distorted at the portfolio level. In this paper we use a hierarchical Bayes approach to model conditional firm-level alphas as a function of firm characteristics. Our empirical results indicate that much of the portfolio-based evidence against the CAPM is overstated. Anomalies are primarily confined to small stocks, few characteristics are robustly associated with CAPM alphas out of sample, and most firm characteristics do not contain unique information about abnormal returns.
Book Synopsis Two Essays on Empirical Asset Pricing by : Yangqiulu Luo
Download or read book Two Essays on Empirical Asset Pricing written by Yangqiulu Luo and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays on empirical asset pricing. The first essay examines if the idiosyncratic risk is priced. Theories such as Merton (1987) predict that idiosyncratic risk should be priced when investors do not diversify their portfolio. However, the previous literature has presented a mixed set of results of the pricing of idiosyncratic risk. We find strong evidence that idiosyncratic risk is priced differently across bull and bear markets. For the sample period from June 1946 to the end of 2010, a factor portfolio long on stocks with high idiosyncratic volatility and short on stocks with low idiosyncratic volatility yields an equal-weighted monthly return of 1.59% for bull markets but -1.29% for bear markets. These evidences support the hypothesis that investors are rewarded for betting on individual stocks during bull markets and holding more diversified portfolios during bear markets. The second essay examines the role of the limits to arbitrage in the negative effect of liquidity on subsequent stock returns. I hypothesize that if the negative effect persists because of the limits to arbitrage, the effect should be more pronounced when there are more severe limits to arbitrage. My empirical evidence supports the hypothesis. In addition, I find that the effect of the limits to arbitrage on the liquidity anomaly is not correlated to the liquidity risk.
Book Synopsis Essays on Asset Pricing Models by : Yan Li
Download or read book Essays on Asset Pricing Models written by Yan Li and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation contains three chapters. Chapter one proposes a nonparametric method to evaluate the performance of a conditional factor model in explaining the cross section of stock returns. There are two tests: one is based on the individual pricing error of a conditional model and the other is based on the average pricing error. Empirical results show that for valueweighted portfolios, the conditional CAPM explains none of the asset-pricing anomalies, while the conditional Fama-French three-factor model is able to account for the size effect, and it also helps to explain the value effect and the momentum effect. From a statistical point of view, a conditional model always beats a conditional one because it is closer to the true data-generating process. Chapter two proposes a general equilibrium model to study the implications of prospect theory for individual trading, security prices and trading volume. Its main finding is that different components of prospect theory make different predictions. The concavity/convexity of the value function drives a disposition effect, which in turn leads to momentum in the cross-section of stock returns and a positive correlation between returns and volumes. On the other hand, loss aversion predicts exactly the opposite, namely a reversed disposition effect and reversal in the cross-section of stock returns, as well as a negative correlation between returns and volumes. In a calibrated economy, when prospect theory preference parameters are set at the values estimated by the previous studies, our model can generate price momentum of up to 7% on an annual basis. Chapter three studies the role of aggregate dividend volatility in asset prices. In the model, narrow-framing investors are loss averse over fluctuations in the value of their financial wealth. Persistent dividend volatility indicates persistent fluctuation in their financial wealth and makes stocks undesirable. It helps to explain the salient feature of the stock market including the high mean, excess volatility, and predictability of stock returns while maintaining a low and stable risk-free rate. Consistent with the data, stock returns have a low correlation with consumption growth, and Sharpe ratios are time-varying.
Book Synopsis Stock Market Anomalies by : Elroy Dimson
Download or read book Stock Market Anomalies written by Elroy Dimson and published by CUP Archive. This book was released on 1988-03-17 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Pricing and Intrinsic Values by : Bruce N. Lehmann
Download or read book Asset Pricing and Intrinsic Values written by Bruce N. Lehmann and published by . This book was released on 1991 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: A review of A Reappraisal of the efficiency of financial markets edited by Rui M.C. Guimaraes, Brian G. Kingsman and Stephen J. Taylor.
