Multi Factor Asset Pricing Models For German Stocks

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Multi-Factor-Asset Pricing Models for German Stocks

Author : Wolfgang Bessler
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Multi-Factor-Asset Pricing Models for German Stocks by : Wolfgang Bessler

Download or read book Multi-Factor-Asset Pricing Models for German Stocks written by Wolfgang Bessler and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The large number of asset pricing models and empirical studies of stock returns are evidence of the desire to understand the return generating process of financial assets in general and for stocks in particular. One focus of the research in this area has been on multi-factor asset pricing models [Chen et al. (1986), Fama/French (1992)]. These models are based on the assumption that stock returns are generated by a limited number of economic variables such as company, industry or macroeconomic factors.The objective of this study is to analyze the importance of various economic factors in explaining the return structure for stocks in Germany and to investigate whether the impact of these factors is time varying. This is important, because in most studies of asset pricing models it is assumed that the parameters are non time varying. In particular, we investigate the time variability of the explanatory power and the beta coefficients in a multi-factor framework. For this we employ a rolling estimation procedure that allows us to analyze the time variability of the model coefficients.In the empirical analysis we use monthly data of four macroeconomic variables and the market index to explain the returns of four German industry indices for the period from 1974 to 2000. In contrast to most studies which exclude banks from their empirical analysis we use three industrial indices and a bank index. The economic factors included in our model are term spreads, interest rates, exchange rates and the ifo business index as well as the market index. The empirical results confirm that the factors used in our empirical analysis seem well suited to explain the stock returns especially for banks. Moreover, it is evident that the explanatory power and the beta coefficients are time varying.

Asset Pricing Factor Models in the German Stock Market

Author : Julian Fischer
Publisher : GRIN Verlag
ISBN 13 : 3346420094
Total Pages : 109 pages
Book Rating : 4.3/5 (464 download)

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Book Synopsis Asset Pricing Factor Models in the German Stock Market by : Julian Fischer

Download or read book Asset Pricing Factor Models in the German Stock Market written by Julian Fischer and published by GRIN Verlag. This book was released on 2021-06-14 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,7, University of Hannover (Institut für Finanzwirtschaft und Rohstoffmärkte), language: English, abstract: In this paper, we examine how various modern multifactor models, such as the Carhart factor model, five-factor model and its complement six-factor model by Fama and French, the q-factor model by Hou, Wue and Zhang, and the mispricing factor model by Stambaugh and Yuan perform in the German stock market. It is discernible that, depending on the application model, like factor spanning tests, different sortings, return anomalies, sector- and equity fund investigation, they often provide quite similar explanatory power, while in individual cases sometimes one and sometimes the other model performs better. The underlying factors contribute differently to the explanatory power depending on the time period. Thus, in case of doubt, the six-factor model is preferable, as it is the most versatile model. Since the establishment of the capital asset pricing model as a cornerstone of modern capital market theory in the 1960s, new investigations and studies have been built on this model on an ongoing basis. This continuously leads to extensions and modifications of the asset pricing models since then. These models can be used in various ways, for example to explain the pricing of risky financial assets under restrictive assumptions or to gain important insights into the relationship between expected return and risk of securities. These can be used in various ways, for example to explain the pricing of risky financial assets under restrictive assumptions or to gain important insights into the relationship between expected return and risk of securities. In this paper, we aim to answer the overarching research question of how modern asset pricing models perform for the German stock market. For this purpose, we first discuss the characteristics of the German stock market, followed by the milestones of the development of factor models, their empirical evidence and their factors, as well as internationally known return anomalies. In the subsequent part, five modern asset pricing models are tested in different scenarios of the German stock market, including factor spanning tests, different sortings, anomalies, sectors and in equity funds. For this purpose, various analytical methods are used and performed with the software “Stata”. Finally, the comprehensive results are summarized and concluded.

On the Explanatory Power of the Capm and Multifactor Models on the German Stock Market

Author : Fabio Martin
Publisher :
ISBN 13 : 9783668720039
Total Pages : 42 pages
Book Rating : 4.7/5 (2 download)

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Book Synopsis On the Explanatory Power of the Capm and Multifactor Models on the German Stock Market by : Fabio Martin

Download or read book On the Explanatory Power of the Capm and Multifactor Models on the German Stock Market written by Fabio Martin and published by . This book was released on 2018-05 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2018 in the subject Business economics - General, grade: 1,0, Justus-Liebig-University Giessen, language: English, abstract: The aim of this thesis is to apply the CAPM and the Fama-French model on the German stock market and to see whether the models hold or not. The research methodology in this thesis is mostly an empirical analysis and adopts the approach of Pamane et. al (2014) and Fama and French (1993). However, I will use a different data set and run the test for the CAPM on single stocks rather than on portfolios in order to avoid covariance problems. Firstly, we will calculate the security market line in a two-step regression and then evaluate the influence of non-linear factors and non-systematic risk factors. In addition, the effects of the financial crisis have to be taken into consideration which is why, dummy variables will be used. However, before we interpret the regression results, we make sure that the data are reliable in the first place and correct them if necessary. For the purpose of assessing the Fama-French model, however, we use a quite different approach and follow the original procedure that was used by Fama and French (1993) themselves. This involves classifying the stocks according to size and value and then building a total of four portfolios. Afterwards, returns are computed and regressed against size and value factors. Even though it is quite common to use, for instance, the DAX or the NASDAQ as proxies, I see the chance of facing endogeneity issues when explaining returns of stocks that are listed in the DAX, which is why I will run all tests for a second time but this time using the MDAX instead of DAX as the market portfolio in order to avoid endogeneity problems.

Testing the CAPM on the German Stock Market

Author : Daniel Loskamp
Publisher : GRIN Verlag
ISBN 13 : 3638677435
Total Pages : 72 pages
Book Rating : 4.6/5 (386 download)

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Book Synopsis Testing the CAPM on the German Stock Market by : Daniel Loskamp

Download or read book Testing the CAPM on the German Stock Market written by Daniel Loskamp and published by GRIN Verlag. This book was released on 2007-12 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2005 in the subject Business economics - Investment and Finance, grade: 1,3, European Business School - International University Schlo Reichartshausen Oestrich-Winkel, course: Asset Management Seminar, 34 entries in the bibliography, language: English, abstract: Although the model is widely accepted and practically used as explained above, it is nevertheless far from being perfect as outlined in its record of empirical studies.9 Generally criticized is on the one hand that the underlying assumptions of the model are very theoretical and thus not able to illustrate reality and on the other one that there are problems in implementing well-founded tests of the model relating to the choice of the right market portfolio.10 But, the success of the CAPM will remain as long as there is no other model which offers as " ...] powerful and intuitively pleasing predictions about how to measure risk and the relation between risk and return."11 The objective of this study is to empirically test the CAPM on the German stock market. Since most of the empirical studies that have been made in the past focus on the U.S. stock market, this paper will try to find out if the results of these U.S. empirical studies can also be shown on the German stock market. Therefore, the goal of this paper is to analyze the relationship between risk and return on the German stock market to find out whether the CAPM holds.

Common risk factors in the German stock market

Author : Daniel Bathe
Publisher : GRIN Verlag
ISBN 13 : 3638042529
Total Pages : 74 pages
Book Rating : 4.6/5 (38 download)

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Book Synopsis Common risk factors in the German stock market by : Daniel Bathe

Download or read book Common risk factors in the German stock market written by Daniel Bathe and published by GRIN Verlag. This book was released on 2008-05-05 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: Diploma Thesis from the year 2007 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, University of Tubingen, language: English, abstract: This paper develops a multifactor model for explaining the difference in average returns for the German stock market in the period between July 1990 and June 2007. The methodology of Fama and French (1993) is adopted to determine possible common risk factors in that market. Despite the enormous and strong stock markets movements and the high volatility during that period, the three factors RM-RF, SMB and HML seem to be able to capture cross-sectional variation in average returns for portfolios formed on various sorting criteria based on publicly available financial data. In addition, the analysis shows a negative (risk?) premium for small size stocks, which is a surprising result since it contradicts previous studies for the German, but also international markets. For stocks with a high book-to-market value, a strong positive premium is found. This value effect is consistent over time and statistically significant. Positive premiums seem to exist for high E/P and C/P stocks as well. These market anomalies show that returns are indeed predictable in the German market over long time horizons. High BM, E/P and C/P stocks do outperform stocks with low ratios in these categories significantly and consistent over time. However, the evidence in this analysis highlights that the common explanation in rational asset-pricing models of an outperformance due to some economic risk factors that are proxied by HML and SMB must be strongly questioned. Portfolios consisting of value stocks outperform growth portfolios in all possible states of the stock market. This evidence is contradictory to the ‘marginal value of wealth’ assumption in the rational asset pricing models presented. Additionally, there is a January effect in stock returns which cannot be captured by a risk-based, rational asset pricing model. Thus, the evidence suggests that it is in fact investor irrationality which is causing differences in average returns across stocks. RM-RF, SMB and HML can be described as common factors helping to explain return differences, but it is very likely that it is not underlying economic risk, but investor behavior which is causing the presented market anomalies and return predictability.

Evaluating Conditional Asset Pricing Models for the German Stock Market

Author : Andreas Schrimpf
Publisher :
ISBN 13 :
Total Pages : 45 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Evaluating Conditional Asset Pricing Models for the German Stock Market by : Andreas Schrimpf

Download or read book Evaluating Conditional Asset Pricing Models for the German Stock Market written by Andreas Schrimpf and published by . This book was released on 2008 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the performance of conditional asset pricing models in explaining the German cross-section of stock returns. Our test assets are portfolios sorted by size and book-to-market as in the paper by Fama and French (1993). Our results show that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved substantially when allowing for time-varying parameters of the stochastic discount factor. A conditional CAPM with the term spread as a conditioning variable is able to explain the cross-section of German stock returns about as well as the Fama-French model. Structural break tests do not indicate parameter instability of the model - whereas the reverse is found for the Fama-French model. Unconditional model specifications however do a better job than conditional ones at capturing time-series predictability of the test portfolio returns.

Value Stocks Beat Growth Stocks: An Empirical Analysis for the German Stock Market

Author : Christian Schießl
Publisher : Anchor Academic Publishing (aap_verlag)
ISBN 13 : 3954890690
Total Pages : 77 pages
Book Rating : 4.9/5 (548 download)

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Book Synopsis Value Stocks Beat Growth Stocks: An Empirical Analysis for the German Stock Market by : Christian Schießl

Download or read book Value Stocks Beat Growth Stocks: An Empirical Analysis for the German Stock Market written by Christian Schießl and published by Anchor Academic Publishing (aap_verlag). This book was released on 2013-08 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on a 'free of survivorship-bias' sample of German stocks listed at the Frankfurt stock exchange, the study investigates the ability of hedge portfolio formation structures, built of three value premium proxies (P/B, P/E, and DY), the size factor, and the technical momentum factor, to generate excess returns in the period 1992 to 2011. First, the author characterizes and defines the significant terms that are in connection with value and growth investing. He continues with the discussion of asset pricing with the CAPM, the Fama and French three-factor model, and the Carhart extension, and then describes the expected stock returns that are of capital importance. Moreover, the author deals with related studies for the German stock market. He gives a detailed description of the empirical analysis before he draws his conclusions. The author's purpose is to answer the following core questions: Is there a value premium in the German market between 1992 and 2011? Is there a reversed size premium like recent empirical findings suggest? Do high momentum stocks perform better than low momentum stocks? Is there a significant seasonal pattern in hedge portfolio returns? The combination of which factors best explains expected stock returns?

A Comparison of Multi-factor Asset Pricing Models Using US Stock Market Data

Author : Pia Grammig
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (962 download)

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Book Synopsis A Comparison of Multi-factor Asset Pricing Models Using US Stock Market Data by : Pia Grammig

Download or read book A Comparison of Multi-factor Asset Pricing Models Using US Stock Market Data written by Pia Grammig and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Bank Stock Returns and Economic Variables

Author : Wolfgang Bessler
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Bank Stock Returns and Economic Variables by : Wolfgang Bessler

Download or read book Bank Stock Returns and Economic Variables written by Wolfgang Bessler and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The large number of asset pricing models and empirical studies of stock returns are evidence of the desire to understand the return generating process of financial assets in general and for stocks in particular. One focus of the research in this area has been on multi-factor asset pricing models [Chen et al. (1986), Fama/French (1992)]. These models are based on the assumption that stock returns are generated by a limited number of economic variables such as company, industry or macroeconomic factors.The objective of this study is to analyze the importance of various economic factors in explaining the return structure for stocks in Germany and to investigate whether the impact of these factors is time varying. This is important, because in most studies of asset pricing models it is assumed that the parameters are non time varying. In particular, we investigate the time variability of the explanatory power and the beta coefficients in a multi-factor framework. For this we employ a rolling estimation procedure that allows us to analyze the time variability of the model coefficients.In the empirical analysis we use monthly data of four macroeconomic variables and the market index to explain the returns of four German industry indices for the period from 1974 to 2000. In contrast to most studies which exclude banks from their empirical analysis we use three industrial indices and a bank index. The economic factors included in our model are term spreads, interest rates, exchange rates and the ifo business index as well as the market index. The empirical results confirm that the factors used in our empirical analysis seem well suited to explain the stock returns especially for banks. Moreover, it is evident that the explanatory power and the beta coefficients are time varying.

Empirical Asset Pricing Models

Author : Jau-Lian Jeng
Publisher : Springer
ISBN 13 : 3319741926
Total Pages : 277 pages
Book Rating : 4.3/5 (197 download)

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Book Synopsis Empirical Asset Pricing Models by : Jau-Lian Jeng

Download or read book Empirical Asset Pricing Models written by Jau-Lian Jeng and published by Springer. This book was released on 2018-03-19 with total page 277 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book analyzes the verification of empirical asset pricing models when returns of securities are projected onto a set of presumed (or observed) factors. Particular emphasis is placed on the verification of essential factors and features for asset returns through model search approaches, in which non-diversifiability and statistical inferences are considered. The discussion reemphasizes the necessity of maintaining a dichotomy between the nondiversifiable pricing kernels and the individual components of stock returns when empirical asset pricing models are of interest. In particular, the model search approach (with this dichotomy emphasized) for empirical model selection of asset pricing is applied to discover the pricing kernels of asset returns.

Profitability and Asset Prices in European Stock Markets

Author : Julian Fischer
Publisher : GRIN Verlag
ISBN 13 : 3668967180
Total Pages : 34 pages
Book Rating : 4.6/5 (689 download)

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Book Synopsis Profitability and Asset Prices in European Stock Markets by : Julian Fischer

Download or read book Profitability and Asset Prices in European Stock Markets written by Julian Fischer and published by GRIN Verlag. This book was released on 2019-06-26 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2019 in the subject Business economics - Investment and Finance, grade: 1,0, University of Hannover (Institute for Financial Markets), course: Master Seminar Finance: Asset Pricing & Asset Management, language: English, abstract: In this paper, we examine profitability patterns for the German, France and Italian stock markets and compare it to previous research evidence of the European stock market. Most results of our examination are in line with previous investigations. Thus, we can confirm for all three countries, that more profitable firms earn higher risk-adjusted returns on average. Furthermore, Profitability Anomalies are present in the German and France stock market, but astonishingly not identifiable in the Italian stock markets. Five of seven profitability measures are suitable for identifying anomalies. Latest studies on asset pricing models reveal new evidence for anomalies in the stock markets. The investigations of anomalies can be splitted in different categories: Momentum, Value-versus-growth, Investment, Intangibles, Trading frictions and Profitability. Most of the investigations assess stock markets on a continental level, like Europe, North America, Japan and Asia Pacific for instance. Undoubtedly, these results are very useful for an overall statement, but leaves one question unanswered: Are there any frictions within different European stock markets? In this paper, we will examine the Profitability Anomalies of the German, France and Italian stock markets.

Implementing the Fama-French Five-Factor Model for the German Stock Market

Author : Philipp Dirkx
Publisher :
ISBN 13 :
Total Pages : 23 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Implementing the Fama-French Five-Factor Model for the German Stock Market by : Philipp Dirkx

Download or read book Implementing the Fama-French Five-Factor Model for the German Stock Market written by Philipp Dirkx and published by . This book was released on 2018 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: We implement the Fama-French five-factor model for the German market using recent monthly data from 2002 to 2017. We construct the five factors associated with the market, size, value, profitability, and investment for the CDAX constituents and examine to which extent the five-factor model captures the return premia in the German market. The results show that in comparison with the three factor model, the five factor model does not add significant explanatory power to the analysis. We conclude that, the validity of the profitability and investment factors within the context of international asset pricing studies, cannot be transferred to the country specific case of the German market.

An Empirical Test of the "Capital Asset Pricing Modell" (CAPM) on Current Stock Data

Author : Lucas Ammelung
Publisher :
ISBN 13 : 9783346338099
Total Pages : 62 pages
Book Rating : 4.3/5 (38 download)

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Book Synopsis An Empirical Test of the "Capital Asset Pricing Modell" (CAPM) on Current Stock Data by : Lucas Ammelung

Download or read book An Empirical Test of the "Capital Asset Pricing Modell" (CAPM) on Current Stock Data written by Lucas Ammelung and published by . This book was released on 2020-12-30 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2020 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, Munich University of Applied Sciences, language: English, abstract: The goal of this study is thus to determine the best available asset pricing model in Germany and whether the use of pre-existing datasets, with the factors already calculated, brings results as accurate as a custom dataset. This is relevant in Germany as the CAPM is still the most commonly used way to compute the cost of equity with 34% of companies using it. Another 16% of companies are using asset pricing models with additional risk factors. To determine the answer to this, this study will look into the aforementioned three most commonly used models: the CAPM, the Fama and French three-factor model and the Carhart four-factor model. After explaining the background and functioning of the CAPM, this study will show the flaws within the model and how these flaws led to extensions of the CAPM. Each model will then be statistically analyzed with three distinct sets of data. Two of these are publicly available, while the last has been calculated for this study. Lastly, to understand how the difference in data used can influence the results from asset pricing models, the runtime and underlying factor of datasets will be modified, re-analyzed and compared to the initial results.

Multifactor Assets Pricing Model

Author : Khushboo Sagar
Publisher :
ISBN 13 :
Total Pages : 20 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Multifactor Assets Pricing Model by : Khushboo Sagar

Download or read book Multifactor Assets Pricing Model written by Khushboo Sagar and published by . This book was released on 2020 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Generous consideration has been pursued to the empirical testing of multi factor assets pricing models. However, literature provides mixed kind of evidences in the support of multi factor assets pricing model. This study reviews 20 research articles based on multi factor assets pricing model and examines 25 research papers based on the empirically testing of multi factor assets pricing model published during 2001 and 2018 to study the multi factor assets pricing model in the Indian context as well as foreign context. CAPM is a popular normative model used by researchers to explain the relationship between risk and expected return of a risky asset which was developed by Sharpe (1964) and Lintner (1965). This model takes only one risk factor which is the excess market portfolio return (Market premium). Because of poor performance of CAPM in explaining realized returns, the Fama and French three factor asset pricing model (1993) was developed. Fama and French (1993) documented the size effect and the value effect that were not included in the CAPM, generally known as CAPM anomalies. Mark M. Carhart (1997) developed the Carhart four factor model. It is an extension of the FF three factor model with one another factor i.e. momentum factor effect for asset pricing of stocks. In view of the limitations of the earlier three-factor model, Fama and French five-factor asset pricing model (2014) was developed. Fama and French (2014) came with profitability pattern and investment pattern in average stock return along with the market premium, size premium and value premium. This paper may be an expedient source of information to the academics, financial analyst and researchers to understand the asset pricing model.

The Oxford Handbook of Panel Data

Author : Badi Hani Baltagi
Publisher :
ISBN 13 : 0199940045
Total Pages : 705 pages
Book Rating : 4.1/5 (999 download)

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Book Synopsis The Oxford Handbook of Panel Data by : Badi Hani Baltagi

Download or read book The Oxford Handbook of Panel Data written by Badi Hani Baltagi and published by . This book was released on 2015 with total page 705 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Oxford Handbook of Panel Data examines new developments in the theory and applications of panel data. It includes basic topics like non-stationary panels, co-integration in panels, multifactor panel models, panel unit roots, measurement error in panels, incidental parameters and dynamic panels, spatial panels, nonparametric panel data, random coefficients, treatment effects, sample selection, count panel data, limited dependent variable panel models, unbalanced panel models with interactive effects and influential observations in panel data. Contributors to the Handbook explore applications of panel data to a wide range of topics in economics, including health, labor, marketing, trade, productivity, and macro applications in panels. This Handbook is an informative and comprehensive guide for both those who are relatively new to the field and for those wishing to extend their knowledge to the frontier. It is a trusted and definitive source on panel data, having been edited by Professor Badi Baltagi-widely recognized as one of the foremost econometricians in the area of panel data econometrics. Professor Baltagi has successfully recruited an all-star cast of experts for each of the well-chosen topics in the Handbook.

Digital Economy: Complexity and Variety vs. Rationality

Author : Elena G. Popkova
Publisher : Springer Nature
ISBN 13 : 3030295869
Total Pages : 1055 pages
Book Rating : 4.0/5 (32 download)

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Book Synopsis Digital Economy: Complexity and Variety vs. Rationality by : Elena G. Popkova

Download or read book Digital Economy: Complexity and Variety vs. Rationality written by Elena G. Popkova and published by Springer Nature. This book was released on 2019-09-14 with total page 1055 pages. Available in PDF, EPUB and Kindle. Book excerpt: This proceedings book features selected papers from the 9th National Scientific and Practical Conference “Digital Economy: Complexity and Variety Vs. Rationality,” which took place on April 17–18, 2019, in Vladimir (Russian Federation). It presents the latest research in the field of the digital economy, discussing its role in the creation of advantages for the state, entrepreneurship, and society, as well as the emergence of new economic risks. The chapters address the following topics: the importance of economy’s digital modernization, tools for the formation of the digital economy in Russia, specific features and perspectives of digital modernization of the regional economy, an overview of the social consequences of transition to the digital economy, financial components of the digital economy, legal challenges regarding the digital reality for society and state, and the main challenges and threats to the profession of jurisprudence in the context of the digitization of the economy. Intended for representatives of the academic community and researchers interested in the formation of the digital economy and digital society as well as undergraduates, postgraduates, and masters of economic specialties, the book is also a valuable resource for companies that use or wishing to implement digital technologies into their economic practices; and public and government employees involved with monitoring, control, and regulation of the digital economy.

Intertemporal Asset Pricing

Author : Bernd Meyer
Publisher : Physica
ISBN 13 : 9783642586736
Total Pages : 287 pages
Book Rating : 4.5/5 (867 download)

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Book Synopsis Intertemporal Asset Pricing by : Bernd Meyer

Download or read book Intertemporal Asset Pricing written by Bernd Meyer and published by Physica. This book was released on 2011-12-21 with total page 287 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the mid-eighties Mehra and Prescott showed that the risk premium earned by American stocks cannot reasonably be explained by conventional capital market models. Using time additive utility, the observed risk pre mium can only be explained by unrealistically high risk aversion parameters. This phenomenon is well known as the equity premium puzzle. Shortly aft erwards it was also observed that the risk-free rate is too low relative to the observed risk premium. This essay is the first one to analyze these puzzles in the German capital market. It starts with a thorough discussion of the available theoretical mod els and then goes on to perform various empirical studies on the German capital market. After discussing natural properties of the pricing kernel by which future cash flows are translated into securities prices, various multi period equilibrium models are investigated for their implied pricing kernels. The starting point is a representative investor who optimizes his invest ment and consumption policy over time. One important implication of time additive utility is the identity of relative risk aversion and the inverse in tertemporal elasticity of substitution. Since this identity is at odds with reality, the essay goes on to discuss recursive preferences which violate the expected utility principle but allow to separate relative risk aversion and intertemporal elasticity of substitution.