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Testing For Alpha In Linear Factor Pricing Models With A Large Number Of Securities
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Book Synopsis Testing for Alpha in Linear Factor Pricing Models with a Large Number of Securities by : M. Hashem Pesaran
Download or read book Testing for Alpha in Linear Factor Pricing Models with a Large Number of Securities written by M. Hashem Pesaran and published by . This book was released on 2017 with total page 100 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a novel test of zero pricing errors for the linear factor pricing model when the number of securities, N, can be large relative to the time dimension, T, of the return series. The test is based on Student t tests of individual securities and has a number of advantages over the existing standardised Wald type tests. It allows for non-Gaussianity and general forms of weakly cross correlated errors. It does not require estimation of an invertible error covariance matrix, it is much faster to implement, and is valid even if N is much larger than T. Monte Carlo evidence shows that the proposed test performs remarkably well even when T = 60 and N = 5;000. The test is applied to monthly returns on securities in the S&P 500 at the end of each month in real time, using rolling windows of size 60. Statistically significant evidence against Sharpe-Lintner CAPM and Fama-French three factor models are found mainly during the recent financial crisis. Also we find a significant negative correlation between a twelve-months moving average p-values of the test and excess returns of long/short equity strategies (relative to the return on S&P 500) over the period November 1994 to June 2015, suggesting that abnormal profits are earned during episodes of market inefficiencies.
Book Synopsis Testing Linear Factor Pricing Models with Individual Securities in Japan by : Ryohei Oishi
Download or read book Testing Linear Factor Pricing Models with Individual Securities in Japan written by Ryohei Oishi and published by . This book was released on 2018 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study proposes a multivariate test for linear factor asset pricing models when the number of assets, N, is larger than the time dimension of returns, T. We extend the exact test proposed by Gibbons et al. (1989) to obtain a nonsingular covariance matrix with fewer estimation errors in the case of T
Book Synopsis Testing Linear Factor Models on Individual Stocks Using the Average F Test by : Soosung Hwang
Download or read book Testing Linear Factor Models on Individual Stocks Using the Average F Test written by Soosung Hwang and published by . This book was released on 2013 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose the average F statistic for testing linear asset pricing models. The average pricing error, captured in the the statistic, is of more interest than the ex post maximum pricing error of the multivariate F statistic that is associated with extreme long and short positions and excessively sensitive to small perturbations in the estimates of asset means and covariances. The average F test can be applied to thousands of individual stocks and thus is free from the information loss or the data snooping biases from grouping. This test is robust to ellipticity, and more importantly, our simulation and bootstrapping results show that the power of average F test continues to increase as the number of stocks increases. Empirical tests using individual stocks from 1967 to 2006 demonstrate that the popular four factor model (i.e. Fama-French three factors and momentum) is rejected two sub-periods from from 1967 to 1971 and from 1982 to 1986.
Book Synopsis Financial Econometrics by : Oliver Linton
Download or read book Financial Econometrics written by Oliver Linton and published by Cambridge University Press. This book was released on 2019-02-21 with total page 585 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a thorough exploration of the models and methods of financial econometrics by one of the world's leading financial econometricians and is for students in economics, finance, statistics, mathematics, and engineering who are interested in financial applications. Based on courses taught around the world, the up-to-date content covers developments in econometrics and finance over the last twenty years while ensuring a solid grounding in the fundamental principles of the field. Care has been taken to link theory and application to provide real-world context for students. Worked exercises and empirical examples have also been included to make sure complicated concepts are solidly explained and understood.
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 Thousands of Alpha Tests by : Stefano Giglio
Download or read book Thousands of Alpha Tests written by Stefano Giglio and published by . This book was released on 2020 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: Data snooping is a major concern in empirical asset pricing. We develop a new framework to rigorously perform multiple hypothesis testing in linear asset pricing models, while limiting the occurrence of false positive results typically associated with data snooping. By exploiting a variety of machine learning techniques, our multiple-testing procedure is robust to omitted factors and missing data. We also prove its asymptotic validity when the number of tests is large relative to the sample size, as in many finance applications. To improve the finite sample performance, we also provide a wild-bootstrap procedure for inference and prove its validity in this setting. Finally, we illustrate the empirical relevance in the context of hedge fund performance evaluation.
Book Synopsis Complexity in Factor Pricing Models by : Antoine Didisheim
Download or read book Complexity in Factor Pricing Models written by Antoine Didisheim and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This note is part of Quality testing.
Book Synopsis Testing Approximate Linear Asset Pricing Models by : Steven L. Heston
Download or read book Testing Approximate Linear Asset Pricing Models written by Steven L. Heston and published by . This book was released on 1992 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 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 Portfolio Performance Measurement and Benchmarking, Chapter 12 - Conditional Performance Evaluation by : Jon A. Christopherson
Download or read book Portfolio Performance Measurement and Benchmarking, Chapter 12 - Conditional Performance Evaluation written by Jon A. Christopherson and published by McGraw Hill Professional. This book was released on 2009-05-15 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: Here is a chapter from Portfolio Performance Measurement and Benchmarking, which will help you create a system you can use to accurately measure your performance. The authors highlight common mechanical problems involved in building benchmarks and clearly illustrate the resulting fallouts. The failure to choose the right investing performance benchmarks often leads to bad decisions or inaction and, inevitably, lost profits. In this book you will discover a foundation for benchmark construction and discuss methods for all different asset classes and investment styles.
Book Synopsis Linear Statistical Inference and Its Applications by : Calyampudi Radhakrishna Rao
Download or read book Linear Statistical Inference and Its Applications written by Calyampudi Radhakrishna Rao and published by . This book was released on 1965 with total page 552 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 Cross-sectional Test of a Production-based Asset Pricing Model by : John H. Cochrane
Download or read book A Cross-sectional Test of a Production-based Asset Pricing Model written by John H. Cochrane and published by . This book was released on 1992 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Multi-Factor-Asset Pricing Models for German Stocks by : Wolfgang Bessler
Download or read book Multi-Factor-Asset Pricing Models for German Stocks written by Wolfgang Bessler and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The large number of asset pricing models and empirical studies of stock returns are evidence of the desire to understand the return generating process of financial assets in general and for stocks in particular. One focus of the research in this area has been on multi-factor asset pricing models [Chen et al. (1986), Fama/French (1992)]. These models are based on the assumption that stock returns are generated by a limited number of economic variables such as company, industry or macroeconomic factors.The objective of this study is to analyze the importance of various economic factors in explaining the return structure for stocks in Germany and to investigate whether the impact of these factors is time varying. This is important, because in most studies of asset pricing models it is assumed that the parameters are non time varying. In particular, we investigate the time variability of the explanatory power and the beta coefficients in a multi-factor framework. For this we employ a rolling estimation procedure that allows us to analyze the time variability of the model coefficients.In the empirical analysis we use monthly data of four macroeconomic variables and the market index to explain the returns of four German industry indices for the period from 1974 to 2000. In contrast to most studies which exclude banks from their empirical analysis we use three industrial indices and a bank index. The economic factors included in our model are term spreads, interest rates, exchange rates and the ifo business index as well as the market index. The empirical results confirm that the factors used in our empirical analysis seem well suited to explain the stock returns especially for banks. Moreover, it is evident that the explanatory power and the beta coefficients are time varying.
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 Data-snooping Biases in Tests of Financial Asset Pricing Models by : Andrew Wen-Chuan Lo
Download or read book Data-snooping Biases in Tests of Financial Asset Pricing Models written by Andrew Wen-Chuan Lo and published by . This book was released on 1989 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the extent to which tests of financial asset pricing models may be biased by using properties of the data to construct the test statistics. Specifically, we focus on tests using returns to portfolios of common stock where portfolios are constructed by sorting on some empirically motivated characteristic of the securities such as market value of equity. We present both analytical calculations and Monte Carlo simulations that show the effects of this type of data-snooping to be substantial. Even when the sorting characteristic is only marginally correlated with individual security statistics, 5 percent tests based on sorted portfolio returns may reject with probability one under the null hypothesis. This bias is shown to worsen as the number of securities increases given a fixed number of portfolios, and as the number of portfolios decreases given a fixed number of securities. We provide an empirical example that illustrates the practical relevance of these biases.
