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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: 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: 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: 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: Yuming Li Publisher: ISBN: Category : Languages : en Pages : 56
Book Description
This paper presents a consumption-based asset pricing model to explain the equity premium and riskfree puzzles as well as the predictability of returns in the international equity markets. We find that because the model entails idiosyncratic consumption risk which is higher than the aggregate consumption risk, the model helps lower the investor risk aversion needed to explain the mean equity premiums. In addition, because the model also allows for habit formation that disentangles intertemporal substitution from investor risk aversion, the model can resolve the riskfree rate puzzle. Further, as the timevarying individual investor risk aversion and the re-distribution of wealth among heterogeneous investors are contributing factors to the time-varying equity premiums, the model explains larger portions of the long-horizon predictability for many countries' equity markets and the world market portfolio than the world representative-agent model. In contrast, the power utility model with or without idiosyncratic consumption risk fails to explain the level of the real riskfree rate or the predictability of returns.
Author: Publisher: ISBN: Category : Languages : en Pages :
Book Description
This thesis contains two essays. In the first essay, we investigate the impact of time varying volatility of consumption growth on the cross-section and time-series of equity returns. While many papers test consumption-based pricing models using the first moment of consumption growth, less is known about how the time-variation of consumption growth volatility affects asset prices. In a model with recursive preferences and unobservable conditional mean and volatility of consumption growth, the representative agent's estimates of conditional moments of consumption growth affect excess returns. Empirically, we find that estimated consumption volatility is a priced source of risk, and exposure to it predicts future returns in the cross-section. Consumption volatility is also a strong predictor of aggregate quarterly excess returns in the time-series. The estimated negative price of risk together with the evidence on equity premium predictability suggest that the elasticity of intertemporal substitution of the representative agent is greater than unity, a finding that contributes to a long standing debate in the literature. In the second essay, I present a simple model to show that if agents face binding portfolio constraints, stocks with high volatility in states of low market returns demand a premium beyond the one implied by systematic risks. Assets whose volatility positively covaries with market volatility also have high expected returns. Both effects of this idiosyncratic volatility risk premium are strongest for assets that face more binding trading restrictions. Unlike the prior empirical literature that obtains mixed results when focusing on the level of idiosyncratic volatility, I investigate the dynamic behavior of idiosyncratic volatility and find strong support for my predictions. Comovement of innovations of idiosyncratic volatility with market returns negatively predicts returns for trading restricted stocks relative to unrestricted stocks, and comovement.
Author: Aslı Demirgüç-Kunt Publisher: MIT Press ISBN: 0262042541 Category : Business & Economics Languages : en Pages : 415
Book Description
Explicit deposit insurance (DI) is widely held to be a crucial element of modern financial safety nets. This book draws on an original cross-country dataset on DI systems and design features to examine the impact of DI on banking behavior and assess the policy complications that emerge in developing countries.
Author: Wayne Ferson Publisher: MIT Press ISBN: 0262039370 Category : Business & Economics Languages : en Pages : 497
Book Description
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.
Author: Paskalis Glabadanidis
Author: Paskalis Glabadanidis
Author: Paskalis Glabadanidis
Author: Daniele Bianchi
Author: Victor Ng
Author: John H. Cochrane
Author: Alberto Giovannini
Author: Yuming Li
Author: 
Author: Aslı Demirgüç-Kunt
Author: Wayne Ferson