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Author : Narasimhan Jegadeesh
Publisher :
ISBN 13 :
Total Pages : 278 pages
Book Rating : 4.:/5 (57 download)
Download or read book Predictable Behavior of Security Returns and Test of Asset Pricing Models written by Narasimhan Jegadeesh and published by . This book was released on 1987 with total page 278 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Narasimhan Jegadeesh
Publisher :
ISBN 13 :
Total Pages : 278 pages
Book Rating : 4.:/5 (225 download)
Download or read book Predictable Behavior of Security Returns and Tests of Asset Pricing Models written by Narasimhan Jegadeesh and published by . This book was released on 1987 with total page 278 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Chris Kirby
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book The Restrictions on Predictability Implied by Rational Asset Pricing Models written by Chris Kirby and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article shows how rational asset pricing models restrict the regression-based criteria commonly used to measure return predictability. Specifically, it invokes no arbitrage arguments to show that the intercept, slope coefficients, and R-squared in predictive regressions must take specific values. These restrictions provide a way to directly assess whether the predictability uncovered using regression analysis is consistent with rational pricing. Empirical tests reveal that the returns on the CRSP size deciles are too predictable to be compatible with a number of well-known pricing models. However, the overall pattern of predictability across these portfolios is reasonably consistent with what we would expect under circumstances where predictability is rational.
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 : Costis Skiadas
Publisher : Princeton University Press
ISBN 13 : 1400830141
Total Pages : 363 pages
Book Rating : 4.4/5 (8 download)
Download or read book Asset Pricing Theory written by Costis Skiadas and published by Princeton University Press. This book was released on 2009-02-09 with total page 363 pages. Available in PDF, EPUB and Kindle. Book excerpt: Asset Pricing Theory is an advanced textbook for doctoral students and researchers that offers a modern introduction to the theoretical and methodological foundations of competitive asset pricing. Costis Skiadas develops in depth the fundamentals of arbitrage pricing, mean-variance analysis, equilibrium pricing, and optimal consumption/portfolio choice in discrete settings, but with emphasis on geometric and martingale methods that facilitate an effortless transition to the more advanced continuous-time theory. Among the book's many innovations are its use of recursive utility as the benchmark representation of dynamic preferences, and an associated theory of equilibrium pricing and optimal portfolio choice that goes beyond the existing literature. Asset Pricing Theory is complete with extensive exercises at the end of every chapter and comprehensive mathematical appendixes, making this book a self-contained resource for graduate students and academic researchers, as well as mathematically sophisticated practitioners seeking a deeper understanding of concepts and methods on which practical models are built. Covers in depth the modern theoretical foundations of competitive asset pricing and consumption/portfolio choice Uses recursive utility as the benchmark preference representation in dynamic settings Sets the foundations for advanced modeling using geometric arguments and martingale methodology Features self-contained mathematical appendixes Includes extensive end-of-chapter exercises
Author : Christian Schlag
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (119 download)
Download or read book Predictability and the Cross-section of Expected Returns written by Christian Schlag and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Many modern macro finance models imply that excess returns on arbitrary assets are predictable via the price-dividend ratio and the variance risk premium of the aggregate stock market. We propose a simple empirical test for the ability of such a model to explain the cross-section of expected returns by sorting stocks based on the sensitivity of expected returns to these quantities. Models with only one uncertainty-related state variable, like the habit model or the long-run risks model, cannot pass this test. However, even extensions with more state variables mostly fail. We derive conditions under which models would be able to produce expected return patterns in line with the data and discuss various examples.
Author : Carl R. Schwinn
Publisher :
ISBN 13 :
Total Pages : 55 pages
Book Rating : 4.:/5 (129 download)
Download or read book The Predictable and Misleading Consequences When Using Periodic Returns in Traditional Tests of the Capital Asset Pricing Model written by Carl R. Schwinn and published by . This book was released on 2006 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper offers a new understanding of the statistical results obtained by Black, Jensen, and Scholes (1972) and Miller and Scholes (1972) in their tests of the Capital Asset Pricing Model (CAPM). Numerical examples and simulations are used to illustrate how the empirical results of both papers are what we should expect to observe under the null hypothesis that the CAPM does not hold and the returns, either periodic or continuous, are variable. This paper employs geometric Brownian motion (GBM) as a reasonable first-order approximation for the return generating process to capture the predictable, asymmetrical effects of compounding variable returns. The empirical results of the cross-section and time-series tests in both papers can be explained by the simple mathematical dependence of periodic returns upon the underlying variance of the continuously compounded returns. The numerical examples and simulations reproduce the empirical results by matching the variance of the continuously compounded returns on the market factor in the model of GBM to the variance of the returns on the market portfolio in each sample period, although the securities are not priced in the model to reflect aversion to either beta or the variance of the continuously compounded returns.
Author : Lin Sun
Publisher :
ISBN 13 : 9781321964943
Total Pages : 83 pages
Book Rating : 4.9/5 (649 download)
Download or read book A Test of the Role of Behavioral Factors for Asset Pricing written by Lin Sun and published by . This book was released on 2015 with total page 83 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theories suggest that both risk and mispricing are associated with commonality in returns, and information associated with this commonality can be used to predict future returns. However, empirically implemented factor pricing models rarely incorporate psychological factors. I propose to augment standard factor models with behavioral factors to capture commonality in mispricing caused by psychological biases. Specifically, I form risk-and-behavioral composite models and examine whether considering jointly both sources of return predictability better explains known return anomalies. I propose two behavioral factors motivated by overconfidence and limited attention, respectively, and show that behavioral factors differ from standard risk factors in several important respects. I find that the risk-and-behavioral composite models outperform both standard models and other recent models and fully explain a number of well-known anomalies, particularly growth-related anomalies. The evidence suggests that behavioral factors play a prominent role in capturing commonality in mispricing and should be incorporated into asset pricing models.
Author : Dirk P.M. De Wit
Publisher :
ISBN 13 :
Total Pages : 22 pages
Book Rating : 4.:/5 (13 download)
Download or read book Stock Return Predictability and the Drift Between the Outcomes of Portfolio Investment Strategies written by Dirk P.M. De Wit and published by . This book was released on 2013 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Anomalies found in tests of market efficiency do not necessarily imply that security prices do not reflect all available information, as the asset-pricing model used to describe the return generating process might also be false. In the present study, this joint hypothesis problem does not arise, because no use is made of an asset-pricing model. Instead, stock return predictability is tested by verifying whether the underlying variables of the drift between different types of indexes are correlated. This unambiguously tests for the sources of return predictability, which can be related to empirical anomalies, such as the "firm-size effect" and the "winner-loser effect". The drift between indexes is large if the (cross-sectional) variation of the underlying variables is large relative to their mean values, and vice versa. The size-related drift, for instance, is shown to be particularly large, but it also appears to be easily rendered statistically insignificant.
Author : Ane Miren Tamayo
Publisher :
ISBN 13 :
Total Pages : 368 pages
Book Rating : 4.:/5 (519 download)
Download or read book Stock Return Predictability and Conditional Asset Pricing Models written by Ane Miren Tamayo and published by . This book was released on 2002 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jiun-Lin Chen
Publisher :
ISBN 13 :
Total Pages : 32 pages
Book Rating : 4.:/5 (13 download)
Download or read book The Predictability Implied by Consumption-Based Asset Pricing Models written by Jiun-Lin Chen and published by . This book was released on 2018 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The consumption-based models have a lack of predictive power for explaining variability of stock returns. This paper examines two well-known models, Campbell and Cochrane (1999)'s habit model and Bansal and Yaron (2004)'s long-run risks model, to see whether they produce a significant power of return predictability. For the habit model, empirical tests reveal that the state variable, the surplus consumption ratio, explains counter-cyclical time-varying expected returns. The long-run risks model also proves to explain that main sources of volatility in price-dividend ratio are a persistent and predictable consumption growth rate and fluctuating economic uncertainty. The models are also tested by following the work of Kirby (1998) whether they can explain the observed return predictability. Both models fail to generate any significant predictive power. The habit model is relatively strong in volatility, which implies that variation in expected excess return is largely attributable to the time-varying risk aversion.
Author : David Kenji Heike
Publisher :
ISBN 13 :
Total Pages : 234 pages
Book Rating : 4.3/5 (91 download)
Download or read book Two Essays on Time-series Patterns in Security Returns written by David Kenji Heike and published by . This book was released on 1997 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Bradford Jordan
Publisher :
ISBN 13 : 9780530006635
Total Pages : 154 pages
Book Rating : 4.0/5 (66 download)
Download or read book The Arbitrage Model of Security Returns written by Bradford Jordan and published by . This book was released on 2019-05-31 with total page 154 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Over the last two decades, the Capital Asset Pricing Model (CAPM) has emerged as the dominant theoretical basis for much of the research in financial economics. Because direct observation of the market portfolio is a pre-requisite for any valid application of the CAPM, it cannot serve as a theoretical basis for empirical research in securities markets. The Arbitrage Pricing Theory (APT) is a theoretical alternative to the CAPM in which the market portfolio plays no particular role. The purpose of this research is to develop and test a model of the security return generating process based on the APT. Particular emphasis is placed on two facets of the proposed arbitrage model. First, the central prediction of the APT is an absence of arbitrage opportunities, the empirical identification of which would lead to a rejection of the theory. Thus, the first use to which the model is put is the examination of abnormal performance for the securities individually and jointly. The second application involves an event study comparison of the arbitrage model and a popular variant of the market model. The objective of this comparison is to establish the stability and usefulness of the arbitrage model against a known benchmark. In light of the growing list of empirical anomalies associated with the market model and the difficulties in application of the CAPM, an empirically tractable and theoretically sound model of security returns would be a significant step forward in financial research. The data used in the study are daily returns for individual securities from the CRSP file and cover the period 1962 through 1979. The results indicate substantial support for the APT and the arbitrage model. Significant arbitrage opportunities are found to occur in less than 1% of the individual cases, and the hypothesis of jointly zero abnormal performance cannot be rejected in any case. In the event study comparison, the arbitrage model was found to work at least as well as the market model in all cases and was markedly superior in accounting for the January effect. Dissertation Discovery Company and University of Florida are dedicated to making scholarly works more discoverable and accessible throughout the world. This dissertation, "The Arbitrage Model of Security Returns" by Bradford Dunson. Jordan, was obtained from University of Florida and is being sold with permission from the author. A digital copy of this work may also be found in the university's institutional repository, IR@UF. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation.
Author : Jonathan Lewellen
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book Learning, Asset-Pricing Tests, and Market Efficiency written by Jonathan Lewellen and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the asset-pricing implications of parameter uncertainty. We show that, when investors must learn about expected cash flows, empirical tests can find patterns in the data that differ from those perceived by rational investors. Returns might appear predictable to an econometrician, or appear to deviate from the Capital Asset Pricing Model, but investors can neither perceive nor exploit this predictability. Returns may also appear excessively volatile even though prices react efficiently to cash-flow news. We conclude that parameter uncertainty can be important for characterizing and testing market efficiency.
Author : Robert J. Bloomfield
Publisher :
ISBN 13 :
Total Pages : 37 pages
Book Rating : 4.:/5 (129 download)
Download or read book Risk or Mispricing? From the Mouths of Professionals written by Robert J. Bloomfield and published by . This book was released on 2002 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most tests of asset pricing models rely on realized returns as a proxy for expected returns, and cannot determine whether security characteristics are associated with returns because they affect risk or because they reflect mispricing. This paper avoids these problems by conducting two experiments in which we directly elicit how Beta, Market-to-Book ratios and firm size affect the returns expected by Wall Street professionals, and how those factors affect perceived risk and mispricing. Consistent with traditional asset pricing models, professionals expect firms with higher Betas to be riskier investments and generate higher returns. Consistent with behavioral models, professionals expect firms with higher Market-to-Book ratios to be over-priced (and riskier). Professionals expect large firms to be less risky, but do not view firm size to be a sign of mispricing.
Author : Carlo A. Favero
Publisher :
ISBN 13 :
Total Pages : 61 pages
Book Rating : 4.:/5 (963 download)
Download or read book Implications of Return Predictability Across Horizons for Asset Pricing Models written by Carlo A. Favero and published by . This book was released on 2016 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use the evidence on predictability of returns at different horizons to discriminate among competing asset pricing models. Specifically, we employ predictors-based variance bounds, i.e. bounds on the variance of the Stochastic Discount Factors (SDFs) that price a given set of returns conditional on the information contained in a vector of return predictors. We show that return predictability delivers variance bounds that are much tighter than the classical, unconditional Hansen and Jagannathan (1991) bounds. We use the predictors-based bounds to discriminate among three leading classes of asset pricing models: rare disasters, long-run risks and external habit. We find that the rare disasters model of Nakamura, Steinsson, Barro, and Ursua (2013) is the best performer since it satisfies rather comfortably the predictors-based bounds at all horizons. As for long-run risks, while the classical version of Bansal and Yaron (2004) is the model most challenged by the introduction of conditioning information since it struggles to meet the bounds at all horizons, the more general version of Schorfheide, Song, and Yaron (2016), which accounts for multiple volatility components, satisfies the 1- and 5-year bounds as long as the set of test assets includes only equities and T-Bills. The Campbell and Cochrane (1999) habit model lies somehow in the middle: it performs quite well at our longest 5-year horizon while it struggles at the 1-year horizon. Finally, when the set of test assets is augmented with Treasury Bonds, the only model that is able to satisfy the predictors-based bounds is the rare disasters model.
Author : R. Richardson Pettit
Publisher :
ISBN 13 :
Total Pages : 64 pages
Book Rating : 4.:/5 (346 download)
Download or read book Using the Capital Asset Pricing Model and the Market Model to Predict Security Returns written by R. Richardson Pettit and published by . This book was released on 1972 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
