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Positive Alphas And A Generalized Multiple Factor Asset Pricing Model
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Book Synopsis Positive Alphas and a Generalized Multiple-Factor Asset Pricing Model by : Robert A. Jarrow
Download or read book Positive Alphas and a Generalized Multiple-Factor Asset Pricing Model written by Robert A. Jarrow and published by . This book was released on 2015 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives a generalized multiple-factor asset pricing model using only the assumptions of the existence of an equivalent martingale measure, frictionless, and competitive markets. As such, all existing multiple-factor asset pricing models, including the intertermporal CAPM and Ross' APT, are special cases of this formulation. First, similar to the standard models, a traded asset's expected return is linear in a finite number of traded risk-factor returns. Different from standard models, however, this model allows potentially an infinite number of distinct risk-factors in the economy. Different assets will, in general, depend on a different finite set of risk-factors. Second, positive alphas imply arbitrage opportunities or the existence of dominated securities, and not just abnormal expected returns. This generalization is consistent with many of the observed discrepancies between existing multiple-factor asset pricing models and the empirical evidence.
Book Synopsis Bubbles and Multiple-Factor Asset Pricing Models by : Robert A. Jarrow
Download or read book Bubbles and Multiple-Factor Asset Pricing Models written by Robert A. Jarrow and published by . This book was released on 2015 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives a multiple-factor asset pricing model with asset price bubbles in an arbitrage-free, competitive, and frictionless market. As such it generalizes existing asset pricing models, all of which implicitly assume asset price bubbles do not exist. This generalization leads to two new empirical implications. The first is that positive alphas can exist in an arbitrage-free market due to the existence of asset price bubbles. These positive alphas do not represent abnormal profit opportunities. The second is that bubble risk factors can exist with positive risk premiums. The testing of these new empirical implications awaits subsequent research.
Book Synopsis A New Model of Capital Asset Prices by : James W. Kolari
Download or read book A New Model of Capital Asset Prices written by James W. Kolari and published by Springer Nature. This book was released on 2021-03-01 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.
Book Synopsis The Alpha Factor Asset Pricing Model by : Wayne E. Ferson
Download or read book The Alpha Factor Asset Pricing Model written by Wayne E. Ferson and published by . This book was released on 2005 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical studies use the returns of attribute-sorted portfolios of common stocks as if they represent risk factors in an asset pricing model. If the attributes are chosen following an empirically observed relation to the cross-section of stock returns, such portfolios will appear to be useful risk factors, even when the attributes are completely unrelated to risk. We illustrate this result using a parable and argue that the moral of the story is important in practice.
Book Synopsis Robert C. Merton and the Science of Finance: A Collection by : Luis Garcia-Feijóo
Download or read book Robert C. Merton and the Science of Finance: A Collection written by Luis Garcia-Feijóo and published by CFA Institute Research Foundation. This book was released on 2020 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2019, MIT hosted a 75th birthday symposium in honor of Robert C. Merton. The event included presentations by students and colleagues explaining the influence Merton has had on the profession and on their ideas. Each presenter focused on a specific aspect of Merton’s life and contributions so that the audience could gain a full picture of Merton’s influence while avoiding repetition across presentations. The brief contains edited transcripts of some of the speeches and panel discussions that took place at the symposium. The presentations cover Merton’s career, highlighting both his foundational work on continuous time finance and the functional approach to understanding organizations as well as recent work on retirement security and trust. Some of the presentations unveil new aspects of his life. Merton’s father, Robert K. Merton, was one of the most important sociologists of the 20th century, being the originator of concepts such as role model, unanticipated consequences, and self-fulfilling prophecies. Another of the presentations makes a convincing case for Merton as the first financial engineer; the presenter argues that a body of knowledge becomes a science when a field of engineering emerges from it. If that is the case, this brief achieves two goals. It celebrates the influence of Merton on the theory and practice of finance through a series of engaging presentations, and it traces the birth of finance as a science on its own.
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.
Book Synopsis Continuous-Time Asset Pricing Theory by : Robert A. Jarrow
Download or read book Continuous-Time Asset Pricing Theory written by Robert A. Jarrow and published by Springer. This book was released on 2018-06-04 with total page 457 pages. Available in PDF, EPUB and Kindle. Book excerpt: Yielding new insights into important market phenomena like asset price bubbles and trading constraints, this is the first textbook to present asset pricing theory using the martingale approach (and all of its extensions). Since the 1970s asset pricing theory has been studied, refined, and extended, and many different approaches can be used to present this material. Existing PhD–level books on this topic are aimed at either economics and business school students or mathematics students. While the first mostly ignore much of the research done in mathematical finance, the second emphasizes mathematical finance but does not focus on the topics of most relevance to economics and business school students. These topics are derivatives pricing and hedging (the Black–Scholes–Merton, the Heath–Jarrow–Morton, and the reduced-form credit risk models), multiple-factor models, characterizing systematic risk, portfolio optimization, market efficiency, and equilibrium (capital asset and consumption) pricing models. This book fills this gap, presenting the relevant topics from mathematical finance, but aimed at Economics and Business School students with strong mathematical backgrounds.
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.
Book Synopsis Risk and Mispricing in Estimated Alphas by : Austin Hill-Kleespie
Download or read book Risk and Mispricing in Estimated Alphas written by Austin Hill-Kleespie and published by . This book was released on 2018 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study employs boot strapping methods to estimate the distributions of individual security alphas generated from multi-factor models and compares them to empirical observations. I find that a small but sufficient number of positive and statistically significant alphas occurring above the estimated 1% level cannot be fully explained by either model bias or known sources of cross sectional risk. I also revisit concerns raised by King (1966) and Black, Jensen, and Scholes (1972) regarding circumstances that prohibit the testing of asset pricing models at the individual security level. Specifically, I examine the covariance structure of residual terms generated by the CAPM model of Sharpe (1964), Lintner (1965), and Mossin (1966) as well as multi-factor models from Fama and French (1993), Carhart (1997), and Fama and French (2015). I find that comprehensive multi-factor models generally produce almost no discernible covariance of residual terms and do allow for the estimation of individual security alphas. Finally, I examine proposals from Harvey, Liu, and Zhu (2016) and find that alphas with an absolute t-statistic greater than 3 occur in only 0.30% of the sample meaning that this threshold provides a strong level of statistical significance but may also lead to an increased prevalence of type II errors.
Book Synopsis Multi-moment Asset Allocation and Pricing Models by : Emmanuel Jurczenko
Download or read book Multi-moment Asset Allocation and Pricing Models written by Emmanuel Jurczenko and published by Wiley. This book was released on 2006-10-02 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: While mainstream financial theories and applications assume that asset returns are normally distributed and individual preferences are quadratic, the overwhelming empirical evidence shows otherwise. Indeed, most of the asset returns exhibit “fat-tails” distributions and investors exhibit asymmetric preferences. These empirical findings lead to the development of a new area of research dedicated to the introduction of higher order moments in portfolio theory and asset pricing models. Multi-moment asset pricing is a revolutionary new way of modeling time series in finance which allows various degrees of long-term memory to be generated. It allows risk and prices of risk to vary through time enabling the accurate valuation of long-lived assets. This book presents the state-of-the art in multi-moment asset allocation and pricing models and provides many new developments in a single volume, collecting in a unified framework theoretical results and applications previously scattered throughout the financial literature. The topics covered in this comprehensive volume include: four-moment individual risk preferences, mathematics of the multi-moment efficient frontier, coherent asymmetric risks measures, hedge funds asset allocation under higher moments, time-varying specifications of (co)moments and multi-moment asset pricing models with homogeneous and heterogeneous agents. Written by leading academics, Multi-moment Asset Allocation and Pricing Models offers a unique opportunity to explore the latest findings in this new field of research.
Book Synopsis The Adaptive Multi-factor Model and the Financial Market by : Liao Zhu
Download or read book The Adaptive Multi-factor Model and the Financial Market written by Liao Zhu and published by . This book was released on 2020 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modern evolvements of the technologies have been leading to a profound influence on the financial market. The introduction of constituents like Exchange-Traded Funds, and the wide-use of advanced technologies such as algorithmic trading, results in a boom of the data which provides more opportunities to reveal deeper insights. However, traditional statistical methods always suffer from the high-dimensional, high-correlation, and time-varying instinct of the financial data. In this dissertation, we focus on developing techniques to stress these difficulties. With the proposed methodologies, we can have more interpretable models, clearer explanations, and better predictions. We start from proposing a new algorithm for the high-dimensional financial data -- the Groupwise Interpretable Basis Selection (GIBS) algorithm, to estimate a new Adaptive Multi-Factor (AMF) asset pricing model, implied by the recently developed Generalized Arbitrage Pricing Theory, which relaxes the convention that the number of risk-factors is small. We first obtain an adaptive collection of basis assets and then simultaneously test which basis assets correspond to which securities. Since the collection of basis assets is large and highly correlated, high-dimension methods are used. The AMF model along with the GIBS algorithm is shown to have significantly better fitting and prediction power than the Fama-French 5-factor model. Next, we do the time-invariance tests for the betas for both the AMF model and the FF5 in various time periods. We show that for nearly all time periods with length less than 6 years, the $\beta$ coefficients are time-invariant for the AMF model, but not the FF5 model. The $\beta$ coefficients are time-varying for both AMF and FF5 models for longer time periods. Therefore, using the dynamic AMF model with a decent rolling window (such as 5 years) is more powerful and stable than the FF5 model. We also successfully provide a new explanation of the well-known low-volatility anomaly which pervades in the finance literature for a long time. We use the Adaptive Multi-Factor (AMF) model estimated by the Groupwise Interpretable Basis Selection (GIBS) algorithm to find those basis assets significantly related to low and high volatility portfolios. These two portfolios load on very different factors, which indicates that volatility is not an independent risk, but that it is related to existing risk factors. The out-performance of the low-volatility portfolio is due to the (equilibrium) performance of these loaded risk factors. For completeness, we compare the AMF model with the traditional Fama-French 5-factor (FF5) model, documenting the superior performance of the AMF model.
Book Synopsis The Capital Asset Pricing Model by :
Download or read book The Capital Asset Pricing Model written by and published by Bookboon. This book was released on with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Testing Multi-factor Asset Pricing Models in the Visegrad Countries by : Magdalena Morgese Borys
Download or read book Testing Multi-factor Asset Pricing Models in the Visegrad Countries written by Magdalena Morgese Borys and published by . This book was released on 2007 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Single-Factor Consumption-Based Asset Pricing Model by : Stefanos Delikouras
Download or read book A Single-Factor Consumption-Based Asset Pricing Model written by Stefanos Delikouras and published by . This book was released on 2017 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a single-factor asset pricing model based on an indicator function of consumption growth being less than its endogenous certainty equivalent. This certainty equivalent is derived from generalized disappointment aversion preferences, and it is located approximately one standard deviation below the conditional mean of consumption growth. Our single-factor model can explain the cross-section of expected returns for size, value, reversal, profitability, and investment portfolios at least as well as the Fama-French multi-factor models. Our results show strong empirical support for asymmetric preferences, and question the effectiveness of the smooth utility framework, which is traditionally used in consumption-based asset pricing.
Book Synopsis Empirical Asset Pricing by : Wayne Ferson
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.
Book Synopsis Capital Asset Pricing Model by : 50minutes,
Download or read book Capital Asset Pricing Model written by 50minutes, and published by 50 Minutes. This book was released on 2015-09-02 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Make smart investment decisions to build a strong portfolio This book is a practical and accessible guide to understanding and implementing the capital asset pricing model, providing you with the essential information and saving time. In 50 minutes you will be able to: • Understand the uses of the capital asset pricing model and how you can apply it to your own portfolio • Analyze the components of your current portfolio and its level of efficiency to assess which assets you should retain and which you should remove • Calculate the level of risk involved in new investments so that you make the right decisions and build the most efficient portfolio possible ABOUT 50MINUTES.COM | Management & Marketing 50MINUTES.COM provides the tools to quickly understand the main theories and concepts that shape the economic world of today. Our publications are easy to use and they will save you time. They provide elements of theory and case studies, making them excellent guides to understand key concepts in just a few minutes. In fact, they are the starting point to take action and push your business to the next level.
Book Synopsis Economic Foundations Of Risk Management, The: Theory, Practice, And Applications by : Robert A Jarrow
Download or read book Economic Foundations Of Risk Management, The: Theory, Practice, And Applications written by Robert A Jarrow and published by World Scientific. This book was released on 2016-11-02 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'The book is an ideal complement to existing monographs on financial risk management. The reader will benefit from a standard background in no-arbitrage pricing. A tour of risk types and risk management principles is presented in a terse, no-fuss manner. Plenty of pointers to additional literature are given, allowing the interested reader to go deeper into any of the topics presented.'Newsletter of the Bachelier Finance Society The Economic Foundations of Risk Management presents the theory, the practice, and applies this knowledge to provide a forensic analysis of some well-known risk management failures. By doing so, this book introduces a unified framework for understanding how to manage the risk of an individual's or corporation's or financial institution's assets and liabilities. The book is divided into five parts. The first part studies the markets and the assets and liabilities that trade therein. Markets are differentiated based on whether they are competitive or not, frictionless or not (and the type of friction), and actively traded or not. Assets are divided into two types: primary assets and financial derivatives. The second part studies models for determining the risks of the traded assets. Models provided include the Black-Scholes-Merton, the Heath-Jarrow-Morton, and the reduced form model for credit risk. Liquidity risk, operational risk, and trading constraint models are also contained therein. The third part studies the conceptual solution to an individual's, firm's, and bank's risk management problem. This formulation involves solving a complex dynamic programming problem that cannot be applied in practice. Consequently, Part IV investigates how risk management is actually done in practice via the use of diversification, static hedging, and dynamic hedging. Finally, Part V applies these collective insights to six case studies, which are famous risk management failures. These are Penn Square Bank, Metallgesellschaft, Orange County, Barings Bank, Long Term Capital Management, and Washington Mutual. The credit crisis is also discussed to understand how risk management failed for many institutions and why.
