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Model Free International Stochastic Discount Factors
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Book Synopsis Model-free International Stochastic Discount Factors by : Paula Mirela Sandulescu
Download or read book Model-free International Stochastic Discount Factors written by Paula Mirela Sandulescu and published by . This book was released on 2018 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a theoretical characterization of international stochastic discount factors (SDFs) in incomplete markets under different degrees of market segmentation. Using 40 years of data on a cross-section of countries, we estimate model-free SDFs and factorize them into permanent and transitory components. We find that large permanent SDF components help to reconcile the low exchange rate volatility, the exchange rate cyclicality, and the forward premium anomaly. However, integrated markets entail highly volatile and almost perfectly comoving international SDFs. In contrast, segmented markets can generate less volatile and more dissimilar SDFs. In quest of relating the SDFs to economic fundamentals, we document strong links between proxies of financial intermediaries' risk-bearing capacity and model-free international SDFs. We interpret this evidence through the lens of an economy with two building blocks: limited participation by households and financiers who face an intermediation friction.
Book Synopsis Model-free International Stochastic Discount Factors by : Paula Mirela Sandulescu
Download or read book Model-free International Stochastic Discount Factors written by Paula Mirela Sandulescu and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis International Stochastic Discount Factors and Stochastic Correlation by :
Download or read book International Stochastic Discount Factors and Stochastic Correlation written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Theory of Dissimilarity Between Stochastic Discount Factors by : Gurdip Bakshi
Download or read book A Theory of Dissimilarity Between Stochastic Discount Factors written by Gurdip Bakshi and published by . This book was released on 2020 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a measure of dissimilarity between stochastic discount factors (SDFs) in different economies. The SDFs are made comparable using the respective bond prices as the numeraire. The measure is dimensionless, synthesizes features of the risk-neutral moments of excess currency returns, and can be extracted from currency option prices. Linking theory to data, we provide evidence gathered from (i) the cross-section of 45 currency option prices, (ii) the time-series of currency returns, (iii) estimated SDFs using model-free restrictions, and (iv) structural models in international finance.
Book Synopsis International Stochastic Discount Factors and Stochastic Correlation by :
Download or read book International Stochastic Discount Factors and Stochastic Correlation written by and published by . This book was released on 2015 with total page 179 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Global Factor Structure of Exchange Rates by : Sofonias Korsaye
Download or read book The Global Factor Structure of Exchange Rates written by Sofonias Korsaye and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a model-free framework to study the global factor structure of exchange rates. To this end, we propose a new methodology to estimate international stochastic discount factors (SDFs) that jointly price cross-sections of international assets, such as stocks, bonds, and currencies, in the presence of frictions. We theoretically establish a two-factor representation for the cross-section of international SDFs, consisting of one global and one local factor, which is independent of the currency denomination. We show that our two-factor specification prices a large cross-section of international asset returns, not just in- but also out-of-sample with R2s of up to 80%.
Book Synopsis Assessing Specification Errors in Stochastic Discount Factor Models by : Lars Peter Hansen
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.
Book Synopsis Modeling and Assessing Stochastic Discount Factors by : Yan Jin
Download or read book Modeling and Assessing Stochastic Discount Factors written by Yan Jin and published by . This book was released on 1998 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Studying the Implications of Consumption and Asset Return Data for Stochastic Discount Factors in Incomplete International Economies by : Gurdip Bakshi
Download or read book Studying the Implications of Consumption and Asset Return Data for Stochastic Discount Factors in Incomplete International Economies written by Gurdip Bakshi and published by . This book was released on 2017 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an incomplete markets framework to synthesize domestic and foreign stochastic discount factors (SDFs) that are consistent with limited international risk sharing. The fundamental departure in our paper is that exchange rate growth need not equal the ratio of SDFs, and we develop a restriction that precludes “good deals” in international economies with incomplete markets. Our innovation is to study an incomplete markets problem that is consistent with SDFs that (i) are nonnegative, (ii) correctly price returns, and (iii) disallow “good deals.”
Book Synopsis Macroeconomic Fluctuations and Equilibrium Discount Factors by : Charles Frederick Kramer
Download or read book Macroeconomic Fluctuations and Equilibrium Discount Factors written by Charles Frederick Kramer and published by International Monetary Fund. This book was released on 1996-10 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The estimation of discount factors is a central issue in empirical finance, particularly in the literature on excess volatility. In particular, it is difficult to find empirical discount factors that are volatile enough to account for fluctuations in asset prices. This paper constructs discount factors from some macroeconomic time series commonly used in empirical models of asset prices. Data for the U.S. stock market imply some evidence that discount factors relate to macroeconomic conditions, but comparison of the estimated discount factors to Hansen-Jagannathan (1991) bounds shows that the candidate discount factors cannot account for the volatility in asset returns.
Book Synopsis A Frequency Decomposition of Approximation Errors in Stochastic Discount Factor Models by : Timothy Cogley
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:
Book Synopsis Bounds on the Autocorrelation of Admissible Stochastic Discount Factors by : Stéphane Chrétien
Download or read book Bounds on the Autocorrelation of Admissible Stochastic Discount Factors written by Stéphane Chrétien and published by . This book was released on 2005 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show how to use asset market data to restrict the admissible region for the first-order autocorrelation of the stochastic discount factor (SDF). We interpret this statistic as a measure of a model's economic time variation across two periods. Estimating bounds for nominal and real SDFs at monthly and quarterly frequencies, we find that the admissible autocorrelations are significantly negative, but greater than -0.02, implying that the bounds impose a strong restriction on candidate SDFs. We illustrate the relevancy of these findings by showing that some widely used consumption-based models are misspecified with respect to the autocorrelation bound. Finally, we examine the implications of our results for the admissibility of linear factor models and the appropriateness of empirical pricing factors.
Book Synopsis Smart Stochastic Discount Factors by : Sofonias A. Korsaye
Download or read book Smart Stochastic Discount Factors written by Sofonias A. Korsaye and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Stochastic Discount Factor Bounds with Conditioning Information by : Wayne E. Ferson
Download or read book Stochastic Discount Factor Bounds with Conditioning Information written by Wayne E. Ferson and published by . This book was released on 2002 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hansen and Jagannathan (HJ, 1991) describe restrictions on the volatility of stochastic discount factors (SDFs) that price a given set of asset returns. This paper compares the sampling properties of different versions of HJ bounds that use conditioning information in the form of a given set of lagged instruments. HJ describe one way to use conditioning information. Their approach is to multiply the original returns by the lagged variables, and much of the asset pricing literature to date has followed this ihmultiplicativel. approach. We also study two versions of optimized HJ bounds with conditioning information. One is from Gallant, Hansen and Tauchen (1990) and the second is based on the unconditionally-efficient portfolios derived in Ferson and Siegel (2000). We document finite-sample biases in the HJ bounds, where the biased bounds reject asset-pricing models too often. We provide useful correction factors for the bias. We also evaluate the asymptotic standard errors for the HJ bounds, from Hansen, Heaton and Luttmer (1995)
Book Synopsis Stochastic Discount Factor Bounds with Conditioning Information by : Wayne E. Ferson
Download or read book Stochastic Discount Factor Bounds with Conditioning Information written by Wayne E. Ferson and published by . This book was released on 2010 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hansen and Jagannathan (HJ, 1991) describe restrictions on the volatility of stochastic discount factors (SDFs) that price a given set of asset returns. This paper compares the sampling properties of different versions of HJ bounds that use conditioning information in the form of a given set of lagged instruments. HJ describe one way to use conditioning information. Their approach is to multiply the original returns by the lagged variables, and much of the asset pricing literature to date has followed this ihmultiplicativel. approach. We also study two versions of optimized HJ bounds with conditioning information. One is from Gallant, Hansen and Tauchen (1990) and the second is based on the unconditionally-efficient portfolios derived in Ferson and Siegel (2000). We document finite-sample biases in the HJ bounds, where the biased bounds reject asset-pricing models too often. We provide useful correction factors for the bias. We also evaluate the asymptotic standard errors for the HJ bounds, from Hansen, Heaton and Luttmer (1995).
Book Synopsis The Stochastic Discount Factor and the Generalized Method of Moments by : Eni Koci
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.
Book Synopsis Latent Variable Models for Stochastic Discount Factors by : Garcia, René
Download or read book Latent Variable Models for Stochastic Discount Factors written by Garcia, René and published by Montréal : CIRANO. This book was released on 1999 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:
