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Author: Paskalis Glabadanidis Publisher: ISBN: Category : Languages : en Pages : 34
Book Description
This paper uses a multivariate GARCH model to account for time variation in factor loadings and idiosyncratic risk in improving the performance of the CAPM and the three-factor Fama-French model. I show how to incorporate time variation in betas and the second moments of the residuals in a very general way. Both the static and conditional CAPM substantially outperform the three-factor model in pricing industry portfolios. Using a dynamic CAPM model results in a 30% reduction in the average absolute pricing error of size/book-to-market portfolios. Ad hoc analysis shows that the market beta of a value-minus-growth portfolio decreases whenever the default premium increases as well as during economic recessions.
Author: Paskalis Glabadanidis Publisher: ISBN: Category : Languages : en Pages : 34
Book Description
This paper uses a multivariate GARCH model to account for time variation in factor loadings and idiosyncratic risk in improving the performance of the CAPM and the three-factor Fama-French model. I show how to incorporate time variation in betas and the second moments of the residuals in a very general way. Both the static and conditional CAPM substantially outperform the three-factor model in pricing industry portfolios. Using a dynamic CAPM model results in a 30% reduction in the average absolute pricing error of size/book-to-market portfolios. Ad hoc analysis shows that the market beta of a value-minus-growth portfolio decreases whenever the default premium increases as well as during economic recessions.
Author: Paskalis Glabadanidis Publisher: ISBN: Category : Languages : en Pages : 62
Book Description
This paper utilizes a state-of-the-art multivariate GARCH model to account for time-variation in idiosyncratic risk in improving the performance of the single-factor CAPM, the three factor Fama-French model and the four-factor Carhart model. I show how to incorporate time-variation in the second moments of the residuals in a very general way. When applied to the Fama and French (1993) size/book-to-market portfolio returns, I document a 50% reduction in the average absolute pricing error of this dynamic Fama-French model over the static one. In addition, I find that market betas of growth stocks increase during recessions while market betas of value stocks decrease during recessions and that HML betas of value stocks increase during recessions while HML betas of growth stocks decrease during recessions. Finally, for the Fama and French industry portfolios I find that the single-factor model outperforms the three and four factor models substantially both in their unconditional and conditional forms.
Author: Daniele Bianchi Publisher: ISBN: Category : Languages : en Pages : 42
Book Description
I use Bayesian tools to develop a dynamic testing methodology for conditional factor pricing models, in which time-varying betas, idiosyncratic risks, and factors risk premia are jointly estimated in a single step. Based on this framework, I test over fifty years of post-war monthly data some of the most common factor pricing models on size, book-to-market, and momentum deciles portfolios, both in the time series and in the cross section. The empirical results show that, a conditional specification of the recent five-factor model of Fama and French (2015) outperforms a set of theory-based competing linear pricing models along several dimensions.
Author: Emmanuel Jurczenko Publisher: John Wiley & Sons ISBN: 0470057998 Category : Business & Economics Languages : en Pages : 258
Book Description
While mainstream financial theories and applications assume that asset returns are normally distributed and individual preferences are quadratic, the overwhelming empirical evidence shows otherwise. Indeed, most of the asset returns exhibit “fat-tails” distributions and investors exhibit asymmetric preferences. These empirical findings lead to the development of a new area of research dedicated to the introduction of higher order moments in portfolio theory and asset pricing models. Multi-moment asset pricing is a revolutionary new way of modeling time series in finance which allows various degrees of long-term memory to be generated. It allows risk and prices of risk to vary through time enabling the accurate valuation of long-lived assets. This book presents the state-of-the art in multi-moment asset allocation and pricing models and provides many new developments in a single volume, collecting in a unified framework theoretical results and applications previously scattered throughout the financial literature. The topics covered in this comprehensive volume include: four-moment individual risk preferences, mathematics of the multi-moment efficient frontier, coherent asymmetric risks measures, hedge funds asset allocation under higher moments, time-varying specifications of (co)moments and multi-moment asset pricing models with homogeneous and heterogeneous agents. Written by leading academics, Multi-moment Asset Allocation and Pricing Models offers a unique opportunity to explore the latest findings in this new field of research.
Author: Don U. A. Galagedera Publisher: ISBN: Category : Languages : en Pages : 22
Book Description
This paper provides a review of the main features of asset pricing models. The review includes single-factor and multi-factor models, extended forms of the Capital Asset Pricing Model (CAPM) with higher-order co-moments and asset pricing models conditional on time varying volatility models.
Author: Chris Bilson Publisher: ISBN: Category : Languages : en Pages : 27
Book Description
This paper explores and tests two multi-factor asset pricing models in an international context. One model focuses only on local risk factors and therefore assumes that the market is completely segmented. The other model focuses only on global risk factors and assumes that the market is fully integrated. The models incorporate time-variation in both the risk exposures and risk premia. The models are applied in cross-section to a range of developed and emerging markets so that varying levels of integration are examined. Expected returns are formed using time-varying estimates of risk premia that allow for out-of-sample testing. Using a range of performance metrics, the findings show that returns in developed markets are better approximated by a global pricing model, whereas returns in emerging markets are better represented by a local pricing model. These results are found to be generally robust to a range of research design issues.
Author: Campbell R. Harvey Publisher: ISBN: Category : Languages : en Pages : 36
Book Description
This paper proposes tests of asset pricing models that allow for time variation in conditional covariances. The evidence indicates that the conditional covariances do change through time. Estimates of the expected excess return on the market divided by the variance of the market (reward-to-risk ratio) are presented for the Sharpe-Lintner CAPM, as well as a number of tests of the model specification. The patterns of the pricing errors through time suggest the model's inability to capture the dynamic behavior of asset returns. This is the working paper version of my 1989 Journal of Financial Economics article.
Author: Paskalis Glabadanidis
Author: Paskalis Glabadanidis
Author: Paskalis Glabadanidis
Author: Daniele Bianchi
Author: Emmanuel Jurczenko
Author: Victor Ng
Author: John H. Cochrane
Author: Alberto Giovannini
Author: Don U. A. Galagedera
Author: Chris Bilson
Author: Campbell R. Harvey