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Author : Craig Burnside
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (16 download)
Download or read book Identification and Inference in Linear Stochastic Discount Factor Models with Excess Returns written by Craig Burnside and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Craig Burnside
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.:/5 (731 download)
Download or read book Identification and inference in linear stochastic discount factor models written by Craig Burnside and published by . This book was released on 2010 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: When linear asset pricing models are estimated using excess return data, a normalization of the model must be selected. Several normalizations are equivalent when the model is correctly specified, but the identification conditions differ across normalizations. In practice, some or all of these identification conditions fail statistically when conventional consumption-based models are estimated, and inference is not robust across normalizations. Using asymptotic theory and Monte Carlo simulations, I present evidence that the lack of robustness in qualitative inference across normalizations can be attributed to model misspecification and lack of identification. I propose the use of tests for failure of the rank conditions. Using a calibrated model, I show that these tests are effective in detecting non-identified models.
Author : Ravi Sastry
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.:/5 (13 download)
Download or read book Efficient Factor Identification written by Ravi Sastry and published by . This book was released on 2015 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Of the hundreds of published asset pricing anomalies, few have been properly tested to determine if they are admissible as true risk factors. Anomalies need not be risk factors, but they are often deployed in subsequent empirical tests as if they are. I leverage the equivalence between the linear factor (beta) model and the stochastic discount factor frameworks to show that the usual (Fama-MacBeth) statistical tests do not correspond to the null hypothesis of interest. These tests demonstrate only that the candidate risk factor is a viable trading strategy, in that it possesses a positive risk-adjusted return. I show that it is neither necessary nor sufficient for a risk factor to be a trading strategy, however. The sufficient statistic for whether a set of candidates are true risk factors is the multivariate analog of the Sharpe ratio, which accounts for the covariance structure of the factors. I present an MCMC procedure that efficiently estimates the multivariate Sharpe ratio and provides valid finite-sample inference.
Author : Timothy Cogley
Publisher :
ISBN 13 :
Total Pages : 46 pages
Book Rating : 4.:/5 (318 download)
Download or read book A Frequency Decomposition of Approximation Errors in Stochastic Discount Factor Models written by Timothy Cogley and published by . This book was released on 1997 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Valerio Potì
Publisher :
ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.:/5 (129 download)
Download or read book A Stochastic Discount Factor Volatility Upper Bound in a Mean-Variance-Skewness World written by Valerio Potì and published by . This book was released on 2007 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper employs a stochastic discount factor (SDF) volatility upper bound to limit the attainable maximal Sharpe ratio and thus, together with a no arbitrage condition, to rule out quot;good deals.quot; While no-arbitrage and the SDF volatility bound imply relatively weak assumptions about investors' preferences and do not require the specification of a full-blown asset pricing theory, they do provide useful restrictions on factor model estimates. This is shown by imposing these restrictions in the estimation of various multifactor models that allow for a non-zero price of coskewness risk. Empirically, while coskewness explains cross-sectional variation in average excess returns not explained by the Fama and French (1996) factors, its price is of a much more modest magnitude than in unrestricted estimates.
Author : Carl Lin
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (777 download)
Download or read book Decomposing Excess Returns in Stochastic Linear Models written by Carl Lin and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Wayne Ferson
Publisher : MIT Press
ISBN 13 : 0262039370
Total Pages : 497 pages
Book Rating : 4.2/5 (62 download)
Download or read book Empirical Asset Pricing written by Wayne Ferson and published by MIT Press. This book was released on 2019-03-12 with total page 497 pages. Available in PDF, EPUB and Kindle. Book excerpt: An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
Author : Jessica James
Publisher : John Wiley & Sons
ISBN 13 : 1118445775
Total Pages : 674 pages
Book Rating : 4.1/5 (184 download)
Download or read book Handbook of Exchange Rates written by Jessica James and published by John Wiley & Sons. This book was released on 2012-05-29 with total page 674 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for Handbook of Exchange Rates “This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field.” —Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley “It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across. I will be keeping a copy close to my fingertips.” —Jim O’Neill, Chairman, Goldman Sachs Asset Management How should we evaluate the forecasting power of models? What are appropriate loss functions for major market participants? Is the exchange rate the only means of adjustment? Handbook of Exchange Rates answers these questions and many more, equipping readers with the relevant concepts and policies for working in today’s international economic climate. Featuring contributions written by leading specialists from the global financial arena, this handbook provides a collection of original ideas on foreign exchange (FX) rates in four succinct sections: • Overview introduces the history of the FX market and exchange rate regimes, discussing key instruments in the trading environment as well as macro and micro approaches to FX determination. • Exchange Rate Models and Methods focuses on forecasting exchange rates, featuring methodological contributions on the statistical methods for evaluating forecast performance, parity relationships, fair value models, and flow–based models. • FX Markets and Products outlines active currency management, currency hedging, hedge accounting; high frequency and algorithmic trading in FX; and FX strategy-based products. • FX Markets and Policy explores the current policies in place in global markets and presents a framework for analyzing financial crises. Throughout the book, topics are explored in-depth alongside their founding principles. Each chapter uses real-world examples from the financial industry and concludes with a summary that outlines key points and concepts. Handbook of Exchange Rates is an essential reference for fund managers and investors as well as practitioners and researchers working in finance, banking, business, and econometrics. The book also serves as a valuable supplement for courses on economics, business, and international finance at the upper-undergraduate and graduate levels.
Author : Lars Peter Hansen
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book Assessing Specification Errors in Stochastic Discount Factor Models written by Lars Peter Hansen and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on Chi-Square statistics associated with null hypotheses that models are correct, our measures of model performance do not reward variability of discount factors. One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims. We demonstrate empirically the usefulness of our methods in assessing some alternative stochastic discount factor models that have been proposed in the literature.
Author : Eni Koci
Publisher :
ISBN 13 :
Total Pages : 60 pages
Book Rating : 4.:/5 (891 download)
Download or read book The Stochastic Discount Factor and the Generalized Method of Moments written by Eni Koci and published by . This book was released on 2006 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The fundamental theorem of asset pricing in finance states that the price of any asset is its expected discounted payoff. Ideally, the payoff is discounted by a factor, which depends on parameters present in the market, and it should be unique, in the sense that financial derivatives should be able to be priced using the same discount factor. In theory, risk neutral valuation implies the existence of a positive random variable, which is called the stochastic discount factor and is used to discount the payoffs of any asset. Apart from asset pricing another use of stochastic discount factor is to evaluate the performance of the of hedge fund managers. Among many methods used to evaluate the stochastic discount factor, generalized method of moments has become very popular. In this paper we will see how generalized method of moments is used to evaluate the stochastic discount factor on linear models and the calculation of stochastic discount factor using generalized method of moments for the popular model in finance CAPM.
Author :
Publisher :
ISBN 13 :
Total Pages : 158 pages
Book Rating : 4.:/5 (436 download)
Download or read book Conditional Nonlinear Stochastic Discount Factor Models as Alternative Explanations to Stock Price Momentum written by and published by . This book was released on 2008 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: Existing linear asset pricing models do not fully explain the abnormal profits associated with prior-return portfolios. In addition, existing nonlinear consumption-based models produce implausible risk aversion coefficient values when applied to priorreturn portfolios. Measures based upon production instead of consumption reduce residual errors and drive risk aversion coefficients towards plausible values. Augmenting the existing models with a new production-based marginal utility growth proxy, supplemented by a production-based consumption proxy not previously applied to price prior-return portfolios, can explain the abnormal profits associated with prior-return portfolios and yield plausible risk aversion coefficient values.
Author : Fousseni Chabi-Yo
Publisher :
ISBN 13 :
Total Pages : 117 pages
Book Rating : 4.:/5 (13 download)
Download or read book Real-Time Distribution of Stochastic Discount Factors written by Fousseni Chabi-Yo and published by . This book was released on 2019 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: I use option prices to infer real-time moments of stochastic discount factors (SDFs). The moments are estimated, from daily SP 500 index option data, in real time, without relying on past observations. These moments are forward-looking and significantly predict the market excess return. The theory suggests that the SDF variance (kurtosis) is positively priced while the SDF skewness is negatively priced in the cross section of returns. A cross-sectional analysis shows that the price of risks associated with the moments of the SDF are economically and statistically significant after controlling for a comprehensible set of economic variables.
Author : Olivier Blanchard
Publisher : MIT Press
ISBN 13 : 9780262521741
Total Pages : 312 pages
Book Rating : 4.5/5 (217 download)
Download or read book NBER Macroeconomics Annual 1992 written by Olivier Blanchard and published by MIT Press. This book was released on 1992 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is the seventh in a series of annuals from the National Bureau of Economic Research that are designed to stimulate research on problems in applied economics, to bring frontier theoretical developments to a wider audience, and to accelerate the interaction between analytical and empirical research in macroeconomics. Contents What Shall We Do Today? Goals and Signposts in the Operation of Monetary Policy, Ben S. Bernanke and Frederic S. Mishkin - A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore, Alwyn Young - International Trade and the Wage Structure, Steven J. Davis - Imperfect Information and Macroeconomic Analysis, Joseph E. Stiglitz and Bruce Greenwald - Asset Pricing Lessons for Macroeconomics, Lars P. Hansen and John H. Cochrane - Postmortem on the Debt Crisis, Daniel Cohen
Author : John H. Cochrane
Publisher : Now Publishers Inc
ISBN 13 : 1933019158
Total Pages : 117 pages
Book Rating : 4.9/5 (33 download)
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Author : Turan G. Bali
Publisher : John Wiley & Sons
ISBN 13 : 1118589475
Total Pages : 512 pages
Book Rating : 4.1/5 (185 download)
Download or read book Empirical Asset Pricing written by Turan G. Bali and published by John Wiley & Sons. This book was released on 2016-02-26 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Author : Giovanni Petris
Publisher : Springer Science & Business Media
ISBN 13 : 0387772383
Total Pages : 258 pages
Book Rating : 4.3/5 (877 download)
Download or read book Dynamic Linear Models with R written by Giovanni Petris and published by Springer Science & Business Media. This book was released on 2009-06-12 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: State space models have gained tremendous popularity in recent years in as disparate fields as engineering, economics, genetics and ecology. After a detailed introduction to general state space models, this book focuses on dynamic linear models, emphasizing their Bayesian analysis. Whenever possible it is shown how to compute estimates and forecasts in closed form; for more complex models, simulation techniques are used. A final chapter covers modern sequential Monte Carlo algorithms. The book illustrates all the fundamental steps needed to use dynamic linear models in practice, using R. Many detailed examples based on real data sets are provided to show how to set up a specific model, estimate its parameters, and use it for forecasting. All the code used in the book is available online. No prior knowledge of Bayesian statistics or time series analysis is required, although familiarity with basic statistics and R is assumed.
Author : John H. Cochrane
Publisher : Princeton University Press
ISBN 13 : 1400829135
Total Pages : 560 pages
Book Rating : 4.4/5 (8 download)
Download or read book Asset Pricing written by John H. Cochrane and published by Princeton University Press. This book was released on 2009-04-11 with total page 560 pages. Available in PDF, EPUB and Kindle. Book excerpt: Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea--price equals expected discounted payoff--that captures the macro-economic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model--consumption based, CAPM, multifactor, term structure, and option pricing--is derived as a different specification of the discounted factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted payoff. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook, this book condenses and advances recent scholarship in financial economics.
