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The Importance Of Timing Attitudes In Consumption Based Asset Pricing Models
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Book Synopsis The Importance of Timing Attitudes in Consumption-Based Asset Pricing Models by : Martin M. Andreasen
Download or read book The Importance of Timing Attitudes in Consumption-Based Asset Pricing Models written by Martin M. Andreasen and published by . This book was released on 2016 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper introduces a new utility kernel for Epstein-Zin-Weil preferences to obtain greater flexibility in setting the intertemporal elasticity of substitution, the relative risk aversion (RRA), and the timing attitude compared to their standard implementation. We show that these new preferences resolve a puzzle in the long-run risk model, where consumption growth is too strongly correlated with the price-dividend ratio and the risk-free rate. The proposed preferences also resolve the puzzlingly high RRA in DSGE models, by enabling an otherwise standard New Keynesian model to match the equity premium and the bond premium with a low RRA of 5.
Author :Sanford J. Grossman Publisher :London : Department of Economics, University of Western Ontario ISBN 13 :9780771406362 Total Pages :33 pages Book Rating :4.4/5 (63 download)
Book Synopsis Estimating the Continuous Time Consumption Based Asset Pricing Model by : Sanford J. Grossman
Download or read book Estimating the Continuous Time Consumption Based Asset Pricing Model written by Sanford J. Grossman and published by London : Department of Economics, University of Western Ontario. This book was released on 1985 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: The consumption based asset pricing model predicts that excess yields are determined in a fairly simple way by the market's degree of relative risk aversion and by the pattern of covariances between percapita consumption growth and asset returns. Estimation and testingis complicated by the fact that the model's predictions relate to the instantaneous flow of consumption and point-in-time asset values, but only data on the integral or unit average of the consumption flow is available. In our paper, we show how to estimate the parameters of interest consistently from the available data by maximum likelihood. We estimate the market's degree of relative risk aversion and the instantaneous covariances of asset yields and consumption using six different data sets. We also test the model's overidentifying restrictions
Book Synopsis Consumption-Based Asset Pricing, Part 2 by : Douglas T. Breeden
Download or read book Consumption-Based Asset Pricing, Part 2 written by Douglas T. Breeden and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Following Part 1 of this article, which reviews late-1970s to 1990s classic derivations and tests of the consumption capital asset pricing model, here in Part 2 we review more recent developments, some of which are based on utility functions with non-time-separable preferences. Important second-generation consumption-based asset pricing advances are also reviewed, including models with habit formation and long-run risk. These models give large cyclical changes in relative risk aversion and risk premiums as well as lagged impacts of aggregate consumption changes on risk premiums. We review asset pricing with rare disasters and models focused on consumer spending on durables and real estate, as well as the fraction of spending financed by labor income. The second-generation models discussed have more free parameters and fit the empirical data better than did the first-generation consumption-based asset pricing models.
Book Synopsis Consumption-based Asset Pricing with Higher Cumulants by : Ian Martin
Download or read book Consumption-based Asset Pricing with Higher Cumulants written by Ian Martin and published by . This book was released on 2010 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: I extend the Epstein-Zin-lognormal consumption-based asset-pricing model to allow for general i.i.d. consumption growth. Information about the higher moments--equivalently, cumulants--of consumption growth is encoded in the cumulant-generating function. I apply the framework to economies with rare disasters, and argue that the importance of such disasters is a double-edged sword: parameters that govern the frequency and sizes of rare disasters are critically important for asset pricing, but extremely hard to calibrate. I show how to sidestep this issue by using observable asset prices to make inferences that are robust to the details of the underlying consumption process.
Book Synopsis The Predictability Implied by Consumption-Based Asset Pricing Models by : Jiun-Lin Chen
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.
Book Synopsis Consumption-based Asset Pricing with Higher Cumulants by : Ian Martin (Assistant Professor of Finance (2008-present))
Download or read book Consumption-based Asset Pricing with Higher Cumulants written by Ian Martin (Assistant Professor of Finance (2008-present)) and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I extend the Epstein-Zin-lognormal consumption-based asset-pricing model to allow for general i.i.d. consumption growth. Information about the higher moments--equivalently, cumulants--of consumption growth is encoded in the cumulant-generating function. I apply the framework to economies with rare disasters, and argue that the importance of such disasters is a double-edged sword: parameters that govern the frequency and sizes of rare disasters are critically important for asset pricing, but extremely hard to calibrate. I show how to sidestep this issue by using observable asset prices to make inferences that are robust to the details of the underlying consumption process -- National Bureau of Economic Research web site.
Book Synopsis Consumption-Based Asset Pricing by : John Y. Campbell
Download or read book Consumption-Based Asset Pricing written by John Y. Campbell and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Evaluating Asset Pricing Models with Limited Commitment Using Household Consumption Data by : Dirk Krueger
Download or read book Evaluating Asset Pricing Models with Limited Commitment Using Household Consumption Data written by Dirk Krueger and published by . This book was released on 2007 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We evaluate the asset pricing implications of a class of models in which risk sharing is imperfect because of limited enforcement of intertemporal contracts. Lustig (2004) has shown that in such a model the asset pricing kernel can be written as a simple function of the aggregate consumption growth rate and the growth rate of consumption of the set of households that do not face binding enforcement constraints. These unconstrained households have lower consumption growth rates than all other households in the economy. We use household data on consumption growth from the U.S. Consumer Expenditure Survey to identify unconstrained households, to estimate the pricing kernel implied by these models and evaluate their performance in pricing aggregate risk. We find that for high values of the relative risk aversion coefficient, the limited enforcement pricing kernel generates a market price of risk that is substantially closer to the data than the one obtained using the standard complete markets asset pricing kernel.
Book Synopsis Multifactor Consumption Based Asset Pricing Models Using the US Stock Market as a Reference by : John Hunter
Download or read book Multifactor Consumption Based Asset Pricing Models Using the US Stock Market as a Reference written by John Hunter and published by . This book was released on 2014 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we extend the time series analysis to the panel frame-work to test the C-CAPM driven by wealth references for developed countries. Speciጿically, we focus on a linearised form of the Consumption-based CAPM in a pooled cross section panel model with two-way error components. The empirical fiijndings of this two-factor model with various speciጿications all indicate that there is signiጿicant unobserved heterogeneity captured by cross-country ጿixed effects when consumption growth is treated as a common factor, of which the average risk aversion coefficient is 4.285. However, the cross-sectional impact of home consumption growth varies dramatically over the countries, where unobserved heterogeneity of risk aversion can also be addressed by random effects.
Download or read book Asset Pricing written by John H. Cochrane and published by Princeton University Press. This book was released on 2009-04-11 with total page 560 pages. Available in PDF, EPUB and Kindle. Book excerpt: Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea--price equals expected discounted payoff--that captures the macro-economic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model--consumption based, CAPM, multifactor, term structure, and option pricing--is derived as a different specification of the discounted factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted payoff. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook, this book condenses and advances recent scholarship in financial economics.
Book Synopsis Is Consumption Growth Only a Sideshow in Asset Pricing? by : Thomas A. Maurer
Download or read book Is Consumption Growth Only a Sideshow in Asset Pricing? written by Thomas A. Maurer and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that risk sources such as unexpected demographic changes or shocks to the agent's subjective time preferences may have stronger implications and be of greater importance for asset pricing than risk in the (aggregate) consumption growth process. In the first chapter, I discuss stochastic changes to time preferences. Shocks to the agent's subjective time discounting of future utility cause stochastic changes in asset prices and the agent's value function. Independent of the consumption growth process, shocks to time discounting imply a covariation between asset returns and the marginal utility process, and the equity premium is non-zero. My model can generate both a reasonably low level and volatility in the risk-free real interest rate and a high stock price volatility and equity premium. If time discounting follows a process with mean- reversion, then the interest rate process is mean-reverting and stock returns are (at long horizons) negatively auto-correlated. In the second chapter, I analyze the asset pricing implications of birth and death rate shocks in an overlapping generations model. The interest rate and the equity premium are time varying and under certain conditions the interest rate is lower and the equity premium is higher during periods characterized by a high birth rate and low mortality than in times of a low birth rate and high mortality. Demographic changes may explain substantial parts of the time variation in the real interest rate and the equity premium. Demographic uncertainty implies a large unconditional variation in asset returns and leads to stochastic changes in the conditional volatility of stock returns. In the last chapter, I illustrate how shocks to the death rate may affect expected asset returns in the cross-section. An agent demands more of an asset with higher (lower) payoff in states of the world when he expects to live longer (shorter) and marginal utility is high (low) than an asset with the opposite payoff schedule. In equilibrium, the first asset pays a lower expected return than the latter. Empirical evidence supports the model. Out-of-sample evidence suggests that a strategy, which loads on uncertainty in the death rate, pays a positive unexplained return according to traditional market models.
Book Synopsis Revisiting Asset Pricing with Uncertainty in Future Risk Aversion by : Christian L. Goulding
Download or read book Revisiting Asset Pricing with Uncertainty in Future Risk Aversion written by Christian L. Goulding and published by . This book was released on 2018 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: In asset pricing models, the indirect synchronizations of changes in time-varying relative risk aversion (RRA) with changes in elasticity of intertemporal substitution (EIS) and/or changes in consumption growth are overlooked confounding factors that limit our understanding of the role of time-varying RRA in asset pricing. I isolate away time-varying RRA from the confounders of perfectly synchronized changes in EIS and consumption growth and from other complexities. Holding EIS fixed under recursive utility and relaxing perfect correlation between RRA and consumption growth, I show that rare and short-lived stochastic shifts in RRA can explain major empirical asset pricing facts.
Book Synopsis Asset Prices, Booms and Recessions by : Willi Semmler
Download or read book Asset Prices, Booms and Recessions written by Willi Semmler and published by Springer Science & Business Media. This book was released on 2007-03-21 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Asset Prices, Booms and Recessions" is a book on Financial Economics from a dynamic perspective. It focuses on the dynamic interaction of financial markets and economic activity. The financial markets to be studied here encompasses the money and bond market, credit market, stock market and foreign exchange market. Economic activity is described by the activity of firms, banks, households, governments and countries. The book shows how economic activity affects asset prices and the financial market and how asset prices and financial market volatility feed back to economic activity. The focus in this book is on theories, dynamic models and empirical evidence. Empirical applications relate to episodes of financial instability and financial crises of the U.S., Latin American, Asian as well as Euro-area countries. The current version of the book has moved to a more extensive coverage of the topics in financial economics by updating the literature in the appropriate chapters. Moreover it gives a more extensive treatment of new and more advanced topics in financial economics such as international portfolio theory, multi-agent and evolutionary approaches, capital asset pricing beyond consumption-based models and dynamic portfolio decisions. Overall, the book presents material that researchers and practitioners in financial engineering need to know about economic dynamics and that economists, practitioners and policy makers need to know about the financial market.
Book Synopsis Towards Consumer 4.0 Insights and Opportunities under the Marketing 4.0 Scenario by : Maria Pilar Martinez-Ruiz
Download or read book Towards Consumer 4.0 Insights and Opportunities under the Marketing 4.0 Scenario written by Maria Pilar Martinez-Ruiz and published by Frontiers Media SA. This book was released on 2021-02-17 with total page 147 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Pricing: A Structural Theory And Its Applications by : Bing Cheng
Download or read book Asset Pricing: A Structural Theory And Its Applications written by Bing Cheng and published by World Scientific. This book was released on 2008-07-21 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modern asset pricing models play a central role in finance and economic theory and applications. This book introduces a structural theory to evaluate these asset pricing models and throws light on the existence of Equity Premium Puzzle. Based on the structural theory, some algebraic (valuation-preserving) operations are developed in asset spaces and pricing kernel spaces. This has a very important implication leading to practical guidance in portfolio management and asset allocation in the global financial industry. The book also covers topics, such as the role of over-confidence in asset pricing modeling, relationship of the portfolio insurance with option and consumption-based asset pricing models, etc.
Book Synopsis Risk Finance and Asset Pricing by : Charles S. Tapiero
Download or read book Risk Finance and Asset Pricing written by Charles S. Tapiero and published by John Wiley & Sons. This book was released on 2010-09-24 with total page 530 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive guide to financial engineering that stresses real-world applications Financial engineering expert Charles S. Tapiero has his finger on the pulse of shifts coming to financial engineering and its applications. With an eye toward the future, he has crafted a comprehensive and accessible book for practitioners and students of Financial Engineering that emphasizes an intuitive approach to financial and quantitative foundations in financial and risk engineering. The book covers the theory from a practitioner perspective and applies it to a variety of real-world problems. Examines the cornerstone of the explosive growth in markets worldwide Presents important financial engineering techniques to price, hedge, and manage risks in general Author heads the largest financial engineering program in the world Author Charles Tapiero wrote the seminal work Risk and Financial Management.
Author :Antoine Petrus Cornelius van der Ploeg Publisher :Rozenberg Publishers ISBN 13 :9051705778 Total Pages :358 pages Book Rating :4.0/5 (517 download)
Book Synopsis Stochastic volatility and the pricing of financial derivatives by : Antoine Petrus Cornelius van der Ploeg
Download or read book Stochastic volatility and the pricing of financial derivatives written by Antoine Petrus Cornelius van der Ploeg and published by Rozenberg Publishers. This book was released on 2006 with total page 358 pages. Available in PDF, EPUB and Kindle. Book excerpt:
