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The Relation Between Time Series And Cross Sectional Effects Of Idiosyncratic Variance On Stock Returns In G7 Countries
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Book Synopsis The Relation Between Time-series and Cross-sectional Effects of Idiosyncratic Variance on Stock Returns in G7 Countries by : Hui Guo
Download or read book The Relation Between Time-series and Cross-sectional Effects of Idiosyncratic Variance on Stock Returns in G7 Countries written by Hui Guo and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "This paper suggests that CAPM-based idiosyncratic variance (IV) correlates negatively with future stock returns because it is a proxy for loadings on discount-rate shocks in Campbell's (1993) ICAPM. The ICAPM also implies that there are important links between the time-series and cross-sectional IV effects. For example, the coefficients on conditional stock market variance and value-weighted average IV obtained from the time-series regressions reflect loadings on stock market returns and discount-rate shocks, respectively; therefore, they should help explain the cross section of stock returns. Moreover, we expect a close relation between the IV and book-to-market effects because recent studies show that the latter also reflects intertemporal pricing. These conjectures are strongly supported by the G7 countries data"--Federal Reserve Bank of St. Louis web site.
Book Synopsis Relation between Time-Series and Cross-Sectional Effects of Idiosyncratic Variance on Stock Returns by : Hui Guo
Download or read book Relation between Time-Series and Cross-Sectional Effects of Idiosyncratic Variance on Stock Returns written by Hui Guo and published by . This book was released on 2010 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Consistent with the post-1962 U.S. evidence by Ang, Hodrick, Xing, and Zhang [Ang, A., Hodrick, R., Xing Y., Zhang, X., 2006. The cross-section of volatility and expected returns. Journal of Finance 51, 259-299.], we find that stocks with high idiosyncratic variance (IV) have low CAPM-adjusted expected returns in both pre-1962 U.S. and modern G7 data. We also test in three ways the conjecture that IV is a proxy of systematic risk. First, the return difference between low and high IV stocks -- that we dub as IVF -- is a priced factor in the cross-section of stock returns. Second, loadings on lagged market variance and lagged average IV account for a significant portion of variation in average returns on portfolios sorted by IV. Third, the variance of IVF correlates closely with average IV, and the two variables have similar explanatory power for the time-series and cross-sectional stock returns.
Book Synopsis Average Idiosyncratic Volatility in G7 Countries by : Hui Guo
Download or read book Average Idiosyncratic Volatility in G7 Countries written by Hui Guo and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We argue that changes in average idiosyncratic volatility provide a proxy for changes in the investment opportunity set and that this proxy is closely related to the book-to-market factor. We test this idea in two ways using G7 countries data. First, we show that idiosyncratic volatility has statistically significant predictive power for aggregate stock market returns over time. Second, we show that idiosyncratic volatility performs just as well as the book-to-market factor in explaining the cross section of stock returns. Our results suggest that the hedge against changes in investment opportunities is an important determinant of asset prices.
Book Synopsis Country and Industry Dynamics in Stock Returns by : Mr.Allan Timmermann
Download or read book Country and Industry Dynamics in Stock Returns written by Mr.Allan Timmermann and published by International Monetary Fund. This book was released on 2003-03-01 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: A perennial question in international finance is to what extent stock returns are influenced by country-location, as opposed to industry-affiliation, factors. This paper develops a novel methodology to measure these effects, in which portfolios mimicking "pure" country and industry factors are first constructed and their joint dynamics then modeled as regime-switching processes. Estimation using global firm-level data allows us to identify well-defined volatility states over the past thirty years and shows that the contribution of the industry factor becomes systematically more prominent during high global volatility states, while the country factor contribution declines. Using the model's estimates, we find that portfolio diversification possibilities vary considerably across economic states.
Book Synopsis Portfolio Diversification by : Francois-Serge Lhabitant
Download or read book Portfolio Diversification written by Francois-Serge Lhabitant and published by Elsevier. This book was released on 2017-09-26 with total page 276 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio Diversification provides an update on the practice of combining several risky investments in a portfolio with the goal of reducing the portfolio's overall risk. In this book, readers will find a comprehensive introduction and analysis of various dimensions of portfolio diversification (assets, maturities, industries, countries, etc.), along with time diversification strategies (long term vs. short term diversification) and diversification using other risk measures than variance. Several tools to quantify and implement optimal diversification are discussed and illustrated. Focuses on portfolio diversification across all its dimensions Includes recent empirical material that was created and developed specifically for this book Provides several tools to quantify and implement optimal diversification
Book Synopsis Idiosyncratic return volatility in the cross-section of stocks by : Namho Kang
Download or read book Idiosyncratic return volatility in the cross-section of stocks written by Namho Kang and published by . This book was released on 2011 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis New Evidence on the Time-Varying Correlation between Consumption Growth and Stock Returns for the G7 Countries by : Lingjia Zhang
Download or read book New Evidence on the Time-Varying Correlation between Consumption Growth and Stock Returns for the G7 Countries written by Lingjia Zhang and published by . This book was released on 2011 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Campbell (1996) reports that, for most countries, the unconditional correlation between quarterly stock returns and consumption growth is small in magnitude and sometimes even negative. Using a bivariate GARCH framework, we examine whether the conditional correlation between stock returns and consumption is positive, even if the unconditional correlation is not. Consistent with this, we find strong evidence, both for U.S. monthly and most G7 quarterly data, that the conditional correlation between innovations in consumption growth and stock returns is positive and significant. Moreover, for six of the G7 countries, we reject the hypothesis that the correlation is constant. For three of the G7 countries (including the U.S.), the correlation is statistically higher for positive stock return shocks relative to negative stock return shocks. However, the correlation is unaffected by large movements in the stock returns for most countries. Our results support Campbell and Cochrane (1999b), who stress the importance of time-varying conditioning information for explaining asset prices. For policymakers concerned with the effect of the stock market on the real economy, our results suggest that the policy response may need to be stronger than normal when the stock market is performing better than expected. However, extreme market conditions, whether positive or negative, should not have additional effects on policy.
Book Synopsis Firm-Level Evidenceon International Stock Market Comovement by : Mr.Marco Del Negro
Download or read book Firm-Level Evidenceon International Stock Market Comovement written by Mr.Marco Del Negro and published by International Monetary Fund. This book was released on 2003-03-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the link between international stock market comovement and the degree to which firms operate globally. Using stock returns and balance sheet data for companies in 20 countries, we estimate a factor model that decomposes stock returns into global, country-specific and industry-specific shocks. We find a large and highly significant link: on average, a firm raising its international sales by 10 percent raises the exposure of its stock return to global shocks by 2 percent and reduces its exposure to country-specific shocks by 1.5 percent. This link has grown stronger since the mid-1980s.
Book Synopsis Essays on the Cross-sectional and Time-series Behavior of Stock Returns by : Vinod Chandrashekaran
Download or read book Essays on the Cross-sectional and Time-series Behavior of Stock Returns written by Vinod Chandrashekaran and published by . This book was released on 1994 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Aggregate Idiosyncratic Volatility in G7 Countries by : Hui Guo
Download or read book Aggregate Idiosyncratic Volatility in G7 Countries written by Hui Guo and published by . This book was released on 2004 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Cross-section of Stock Returns by : Stijn Claessens
Download or read book The Cross-section of Stock Returns written by Stijn Claessens and published by World Bank Publications. This book was released on 1995 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On the Relation Between EGARCH Idiosyncratic Volatility and Expected Stock Returns by : Hui Guo
Download or read book On the Relation Between EGARCH Idiosyncratic Volatility and Expected Stock Returns written by Hui Guo and published by . This book was released on 2014 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: A spurious positive relation between EGARCH estimates of expected month t idiosyncratic volatility and month t stock returns arises when the month t return is included in the estimation of model parameters. We illustrate via simulations that this look-ahead bias is problematic for empirically observed degrees of stock return skewness and typical monthly return time series lengths. Moreover, the empirical idiosyncratic-return relation becomes negligible when expected month t idiosyncratic volatility is estimated using returns only upto month t-1.
Book Synopsis Financial Integration, Entrepreneurial Risk and Global Dynamics by : George-Marios Angeletos
Download or read book Financial Integration, Entrepreneurial Risk and Global Dynamics written by George-Marios Angeletos and published by DIANE Publishing. This book was released on 2011-04 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: How does financial integration impact capital accumulation, current-account dynamics, and cross-country inequality? This paper investigates this question within a two-country, general-equilibrium, incomplete-markets model that focuses on the importance of idiosyncratic entrepreneurial risk -- a risk that introduces, not only a precautionary motive for saving, but also a wedge between the interest rate and the marginal product of capital. This friction provides a simple resolution to the empirical puzzle that capital often fails to flow from the rich or slow-growing countries to the poor or fast-growing ones, and a distinct set of policy lessons regarding the intertemporal costs and benefits of capital-account liberalization. Illus. A print on demand report.
Book Synopsis The Cross-Sectional Variability of Stock-Price Returns by : Michael E. Steliaros
Download or read book The Cross-Sectional Variability of Stock-Price Returns written by Michael E. Steliaros and published by . This book was released on 2009 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the impact of country and sector as variables in explaining the cross-sectional variability of price returns for a sample of over 1900 companies comprising the MSCI Developed World Index, drawn from 21 countries, over the period 1992-2001. For the value-weighted world portfolio, the country effect dominates although the sector effect increases markedly, and the country effect decreases, in the post-2000 period. The country effect is, however, much stronger when the largest 300 companies are excluded from the analysis. The same pattern is observed for the portfolio comprising companies from the EMU countries. For equally-weighted portfolios, the apparent dominance of the sector effect is largely attributable to the inclusion of the TMT sector. The negative trend in market-wide indices and the volatility experienced at the end of the sample period also account for the assertion that the sector effect has overtaken the country effect in the post-2000 period.
Book Synopsis Correlation Dynamics in the G7 Stock Markets by : Anita Suurlaht
Download or read book Correlation Dynamics in the G7 Stock Markets written by Anita Suurlaht and published by . This book was released on 2016 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: The present study explores the trend of the correlation level within the synchronised returns on the G7 equity market indices over the 1991-2015 sample period and its response to changing economic environment. Empirical results show a strong positive trend toward higher correlation level and significant time-series autocorrelation in the magnitude of cross-market return correlation. Correlation level is higher when financial markets experience turbulent periods. The sample period is split into “pre-crisis” and “crisis” periods to allow for different risk dynamics in two states of economy. During the “pre-crisis” period equity markets appear to be more correlated when the countries in the G7 group experience decrease in average GDP level. During the “crisis” period this relationship reverses; the growth in average GDP level is associated with a higher level of correlation within the equity markets.
Book Synopsis What Explains the Variance of Prices and Returns? Time-series Vs. Cross-section by : Denis Biangolino Chaves
Download or read book What Explains the Variance of Prices and Returns? Time-series Vs. Cross-section written by Denis Biangolino Chaves and published by . This book was released on 2010 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the relative importance of discount rates and cash flows with a focus on the differences between time-series and cross-sectional variance tests. I show that the following holds for the market, different types of portfolios, and individual stocks: (a) changes in expected returns drive the majority of the time-series volatility in price ratios and unexpected returns, and (b) differences in expected cash flows generate most of the cross-sectional variance in valuations and unexpected returns. Contrary to previous results in the literature, I conclude that individual stocks or portfolios look similar to the market. These findings are robust to short- and long-run regressions and hold when using dividends or (clean surplus accounting) earnings as cash flows. Finally, I present a simple present-value model with latent expected returns and dividend growth rates that explains most of these results.
Book Synopsis Cross-sectional Skewness by : Simon Sangmin Oh
Download or read book Cross-sectional Skewness written by Simon Sangmin Oh and published by . This book was released on 2018 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper evaluates skewness in the cross-section of stock returns in light of predictions from a well-known class of models. Cross-sectional skewness in monthly returns far exceeds what the standard lognormal model of returns would predict. However, skewness in long-run returns substantially understates what the lognormal model would predict. Nonstationary share dynamics imply a breakdown in the distinction between market and idiosyncratic risk in the lognormal model. We present an alternative model that matches the skewness in the data and implies stationary wealth shares. In this model, idiosyncratic risk is the primary driver of growth in the economy.
