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The Role Of Pricing Errors In Linear Asset Pricing Models With Strong Semi Strong And Latent Factors
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Book Synopsis The Role of Pricing Errors in Linear Asset Pricing Models with Strong, Semi-strong, and Latent Factors by : M. Hashem Pesaran
Download or read book The Role of Pricing Errors in Linear Asset Pricing Models with Strong, Semi-strong, and Latent Factors written by M. Hashem Pesaran and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis What to Do About a Latent Factor by : Todd Prono
Download or read book What to Do About a Latent Factor written by Todd Prono and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: A new model misspecification measure for linear asset pricing models is proposed. The origins of this measure are in Shanken (1987) and Kandel and Stambaugh (1985, 1995), where it is argued that the true market return is inherently latent and, as a consequence, only ever partially observed. Tests of asset pricing models that rely on the market return as a risk factor and are based, by necessity, on an observable proxy to this factor are then misspecified. The proposed misspecification measure, which assigns an upper bound to the correlation between the true market return and the observable proxy return used to conduct the test, can be estimated entirely and directly from observable data. This measure is suited both for testing models that include the market return as a pricing factor in a traditional sense (i.e., determining whether the given model does or does not price a collection of risky assets) and ranking those models (i.e., gauging which model performs the best). The measure is used to price portfolios reflecting the size, value, and momentum premiums. While neither the conditional CAPM nor the ICAPM is shown to offer any improvement over the simple CAPM, all three models are shown to perform materially better under the proposed measure, with improvements in model fit of as much as 45%. Also, it is discovered that winner stocks in a momentum portfolio may have higher market betas than loser stocks.
Book Synopsis Autoencoder Asset Pricing Models by : Shihao Gu
Download or read book Autoencoder Asset Pricing Models written by Shihao Gu and published by . This book was released on 2019 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new latent factor conditional asset pricing model. Like Kelly, Pruitt, and Su (KPS, 2019), our model allows for latent factors and factor exposures that depend on covariates such as asset characteristics. But, unlike the linearity assumption of KPS, we model factor exposures as a flexible nonlinear function of covariates. Our model retrofits the workhorse unsupervised dimension reduction device from the machine learning literature--autoencoder neural networks--to incorporate information from covariates along with returns themselves. This delivers estimates of nonlinear conditional exposures and the associated latent factors. Furthermore, our machine learning framework imposes the economic restriction of no-arbitrage. Our autoencoder asset pricing model delivers out-of-sample pricing errors that are far smaller (and generally insignificant) compared to other leading factor models.
Book Synopsis Robust Inference in Linear Asset Pricing Models by : Nikolay Gospodinov
Download or read book Robust Inference in Linear Asset Pricing Models written by Nikolay Gospodinov and published by . This book was released on 2016 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many asset pricing models include risk factors that are only weakly correlated with the asset returns. We show that in the presence of a factor that is independent of the returns ("useless factor"), the standard inference procedures for evaluating its pricing ability could be highly misleading in misspecified models. Our proposed model selection procedure, which is robust to useless factors and potential model misspecification, restores the standard inference and proves to be effective in eliminating factors that do not improve the model's pricing ability. The practical relevance of our analysis is illustrated using simulations and an empirical application.
Book Synopsis Market Proxies as Factors in Linear Asset Pricing Models by : Todd Prono
Download or read book Market Proxies as Factors in Linear Asset Pricing Models written by Todd Prono and published by . This book was released on 2015 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: A new model misspecification measure for linear asset pricing models is proposed for the case where misspecification maps to latency of one of the pricing factors; in this case, the market return. This measure is suited both for testing models that include the market return as a pricing factor in a traditional sense (i.e., whether the chosen model does or does not price a collection of risky assets) and ranking those models (i.e., determining which model performs best). The proposed measure is used in pricing portfolios reflecting the size, value, and momentum premia. The conditional CAPM of Jagannathan and Wang (1996) is found to best the performance of both the simple CAPM and the ICAPM of Petkova (2006). Moreover, it is discovered that winner stocks in a momentum portfolio may have higher market betas than loser stocks.
Book Synopsis Articles accordés entre les procureurs du parlement concernant la fonction et exercice de leurs charges. (21 janvier-9 mars 1630.). by :
Download or read book Articles accordés entre les procureurs du parlement concernant la fonction et exercice de leurs charges. (21 janvier-9 mars 1630.). written by and published by . This book was released on 1630 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Efficient Estimation of Linear Asset Pricing Models with Moving-average Errors by : Lars Peter Hansen
Download or read book Efficient Estimation of Linear Asset Pricing Models with Moving-average Errors written by Lars Peter Hansen and published by . This book was released on 1990 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis by : Matthew E. Kahn
Download or read book Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis written by Matthew E. Kahn and published by International Monetary Fund. This book was released on 2019-10-11 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labor productivity is affected by country-specific climate variables—defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by more than 7 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to about 1 percent. These effects vary significantly across countries depending on the pace of temperature increases and variability of climate conditions. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labor productivity and employment.
Book Synopsis Testing Linear Asset Pricing Models by : Imane Munzer Dabbous
Download or read book Testing Linear Asset Pricing Models written by Imane Munzer Dabbous and published by . This book was released on 2007 with total page 122 pages. Available in PDF, EPUB and Kindle. Book excerpt: All asset pricing models are necessarily error-ridden. While most of them have f ound supporting evidence, all have inevitably been proven inadequate at some emp irical front. It is from this perspective that all asset pricing models must be considered. The present project attempts an exhaustive comparison of a number of linear asse t pricing models. These will be compared based on their ability to price the ass ets available in the US financial market. In particular, the Hansen-Jagannathan (1997) distance measure test will be the criterion by which models will be compa red and contrasted. It will be used repeatedly to draw conclusions as far as the performance of these models across variations involving the frequency of the da ta, and the conditional information. These sensitivity tests will allow for a ra ther comprehensive evaluation of some of the most popular models, also known as the variants of CAPM. The project is organized as follows. Chapter 1 introduces the topic. The next ch apter provides a discussion of the theoretical aspects of the paper including th e stochastic discount factor concept and the derivation of HJ-distance. Chapter 3 describes the asset pricing models to be evaluated and the parameterization of the different models. Chapter 4 discusses the data and documents the empirical results. The last chapter provides the interpretation of the results as well as concluding remarks.
Book Synopsis Dynamic Leverage Asset Pricing by : Tobias Adrian
Download or read book Dynamic Leverage Asset Pricing written by Tobias Adrian and published by . This book was released on 2016 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We empirically investigate predictions from alternative intermediary asset pricing theories. The theories distinguish themselves in their use of intermediary equity or leverage as pricing factors or forecasting variables. We find strong support for a parsimonious dynamic pricing model based on broker-dealer leverage as the return forecasting variable and shocks to broker-dealer leverage as a cross-sectional pricing factor. The model performs well in comparison to other intermediary asset pricing models as well as benchmark pricing models in linear and nonlinear specifications. We find little empirical support for pricing models using intermediary equity as state variable.
Book Synopsis Essays in Empirical Asset Pricing by : Irina Pimenova
Download or read book Essays in Empirical Asset Pricing written by Irina Pimenova and published by . This book was released on 2018 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation, I revisit two problems in empirical asset pricing. In Chapter 1, I propose a methodology to evaluate the validity of linear asset pricing factor models under short sale restrictions using a regression-based test. The test is based on the revised null hypothesis that intercepts obtained from regressing excess returns of test assets on factor returns, usually referred to as alphas, are non-positive. I show that under short sale restrictions a much larger set of models is supported by the data than without restrictions. In particular, the Fama-French five-factor model augmented with the momentum factor is rejected less often than other models. In Chapter 2, I investigate patterns of equity premium predictability in international capital markets and explore the robustness of common predictive variables. In particular, I focus on predictive regressions with multiple predictors: dividend-price ratio, four interest rate variables, and inflation. To obtain precise estimates, two estimation methods are employed. First, I consider all capital markets jointly as a system of regressions. Second, I take into account uncertainty about which potential predictors forecast excess returns by employing spike-and-slab prior. My results suggest evidence in favor of predictability is weak both in- and out-of-sample and limited to a few countries. The strong predictability observed on the U.S. market is rather exceptional. In addition, my analysis shows that considering model uncertainty is essential as it leads to a statistically significant increase of investors' welfare both in- and out-of-sample. On the other hand, the welfare increase associated with considering capital markets jointly is relatively modest. However, it leads to reconsider the relative importance of predictive variables because the variables that are statistically significant predictors in the country-specific regressions are insignificant when the capital markets are studied jointly. In particular, my results suggest that the in-sample evidence in favor of the interest rate variables, that are believed to be among the most robust predictors by the literature, is spurious and is mostly driven by ignoring the cross-country information. Conversely, the dividend-price ratio emerges as the only robust predictor of future stock returns.
Book Synopsis Risk Aversion and the Structure of Asset Prices by : Robert Rudolph Grauer
Download or read book Risk Aversion and the Structure of Asset Prices written by Robert Rudolph Grauer and published by . This book was released on 1975 with total page 448 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A unifying approach to the empirical evaluation of asset pricing models by : Francisco Peñaranda
Download or read book A unifying approach to the empirical evaluation of asset pricing models written by Francisco Peñaranda and published by . This book was released on 2010 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Give Me Strong Moments and Time: Combining GMM and SMM to Estimate Long-run Risk Asset Pricing Models by : Joachim Grammig
Download or read book Give Me Strong Moments and Time: Combining GMM and SMM to Estimate Long-run Risk Asset Pricing Models written by Joachim Grammig and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The long-run consumption risk (LRR) model is a promising approach to resolve prominent asset pricing puzzles. The simulated method of moments (SMM) provides a natural framework to estimate its deep parameters, but caveats concern model solubility and weak identification. We propose a two-step estimation strategy that combines GMM and SMM, and for which we elicit informative macroeconomic and financial moment matches from the LRR model structure. In particular, we exploit the persistent serial correlation of consumption and dividend growth and the equilibrium conditions for market return and risk-free rate, as well as the model-implied predictability of the risk-free rate. We match analytical moments when possible and simulated moments when necessary and determine the crucial factors required for both identification and reasonable estimation precision. A simulation study - the first in the context of long-run risk modeling - delineates the pitfalls associated with SMM estimation of a non-linear dynamic asset pricing model. Our study provides a blueprint for successful estimation of the LRR model.
Book Synopsis A Critique of Latent Variable Tests of Asset Pricing Models by : Simon Wheatley
Download or read book A Critique of Latent Variable Tests of Asset Pricing Models written by Simon Wheatley and published by . This book was released on 1987 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Fishing with a Licence by : Soosung Hwang
Download or read book Fishing with a Licence written by Soosung Hwang and published by . This book was released on 2008 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the question of which asset pricing factors should be included in linear factor asset pricing model. We develop a simple multivariate extension of a Bayesian variable selection procedure from the statistics literature to estimate posterior probabilities of asset pricing factors using many assets at once. Using a dataset of thousands of individual stocks in the US market, we calculate posterior probabilities of 12 factors which have been suggested in the literature. Our results indicate strong and robust evidence that a linear factor model should include the excess market return, the size and the liquidity factors, and only weak evidence that the idiosyncratic volatility and downside risk factors matter. We find that the famous Fama and French (1993, 1996) HML factor has high posterior probability only if portfolios formed on book-to-market ratio are used.
Book Synopsis Estimating Latent Asset-pricing Factors by : Martin Lettau
Download or read book Estimating Latent Asset-pricing Factors written by Martin Lettau and published by . This book was released on 2018 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an estimator for latent factors in a large-dimensional panel of financial data that can explain expected excess returns. Statistical factor analysis based on Principal Component Analysis (PCA) has problems identifying factors with a small variance that are important for asset pricing. We generalize PCA with a penalty term accounting for the pricing error in expected returns. Our estimator searches for factors that can explain both the expected return and covariance structure. We derive the statistical properties of the new estimator and show that our estimator can find asset-pricing factors, which cannot be detected with PCA, even if a large amount of data is available. Applying the approach to portfolio data we find factors with Sharpe-ratios more than twice as large as those based on conventional PCA and with significantly smaller pricing errors.
