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Author: Shelly Howton Publisher: ISBN: Category : Languages : en Pages :
Book Description
Using the dual-beta model of Bhardwaj and Brooks (1993), thisstudy examines the cross-section of realized stock returns. Bull-market betas are significantly positively related to returns and, except for some models in January, bear-market betas are significantly negatively related to returns. These relationships are not lost even after other independent variables, including size, book-to-market equity, and an earnings-price ratio, are added to the cross-sectional regressions. Book-to-market equity is an important factor in bear, but not bull, markets. Size is important in January and bear markets during February through December.
Author: Shelly Howton Publisher: ISBN: Category : Languages : en Pages :
Book Description
Using the dual-beta model of Bhardwaj and Brooks (1993), thisstudy examines the cross-section of realized stock returns. Bull-market betas are significantly positively related to returns and, except for some models in January, bear-market betas are significantly negatively related to returns. These relationships are not lost even after other independent variables, including size, book-to-market equity, and an earnings-price ratio, are added to the cross-sectional regressions. Book-to-market equity is an important factor in bear, but not bull, markets. Size is important in January and bear markets during February through December.
Author: Devraj Basu Publisher: ISBN: Category : Languages : en Pages : 30
Book Description
The failure of the static-beta CAPM to explain the cross-section of returns on portfolios sorted on firm size, book-to-market ratio, momentum, and even portfolios sorted on past CAPM betas, is well documented. In this paper we show that the model's performance dramatically improves when portfolio betas are allowed to be time-varying functions of (lagged) business cycle variables. We use an approach based on Hansen and Richard (1987) to construct a candidate stochastic discount factor (SDF), using the excess return on the market portfolio as the single factor, scaled by a time-varying coeplusmn;cient. The result is a model in which the conditional factor risk premium is a non-linear function of the business cycle variables. We assess the performance of our model by computing the R2 of the cross-sectional regression of realized on model-implied expected returns, as for example in Jagannathan and Wang (1996). While this is not a formal test of the model's ability to price the assets correctly, it does provide an informative summary statistic that allows us to compare the performance of our scaled model with that of the static version, and also to compare our findings to those of other similar studies.In the post-1980 period, where the static CAPM is known to perform particularly poorly, our scaled model explains around 60% of the cross-sectional variation in returns on beta and book-to-market portfolios, and 87% for momentum portfolios. Moreover, the model captures 70% of the value premium (the return spread between the highest and lowest book-to-market decile portfolios), and 75% of the momentum premium (the spread between the past 'winner' and 'loser' portfolios). Our results thus confirm the crucial importance of time-varying risk premiums in explaining the cross-section of average returns on these sets of portfolios. Moreover, the conditional market risk premium and hence also the betas implied by our model exhibits considerable non-linearity in the business cycle instruments.
Author: Hossein Asgharian Publisher: ISBN: Category : Languages : en Pages :
Book Description
This paper analyses the ability of beta and other factors, like firm size and book-to-market, to explain cross-sectional variation in average stock returns on the Swedish stock market for the period 1980-1997. We use a bivariate GARCH(1,1) process to estimate time-varying betas for asset returns. The estimated variances of these betas, derived from a Taylor series approximation, are used for correcting errors in variables problem. Our model accounts for problems such as cross-sectional and intertemporal heteroscedasticity. An Extreme Bounds Analysis is utilized for testing the sensitivity of the estimated coefficients to changes in the set of included explanatory variables. Since the tests are carried out on realized returns, which presumably are quite noisy approximations of expected returns; we also analyze if the variables play different roles depending on if it is a Bull or Bear market. Our results show that the coefficient for beta is never significantly different from zero, while variables book to market, size and leverage have significant coefficients. Different sensitivity analyses suggest that the results, to some extent, may be due to cross-correlations between the variables, the characteristics of the extreme periods included in the sample, the average sign of the excess market return during the sample period, and the choice of the estimation and test methods. The findings also show that the estimated conditional beta is a more accurate measure of the true market beta than the beta estimated by OLS.
Author: James W. Kolari Publisher: Springer Nature ISBN: 3030651975 Category : Business & Economics Languages : en Pages : 326
Book Description
This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.
Author: Jean-Pierre Danthine Publisher: Elsevier ISBN: 0080509029 Category : Business & Economics Languages : en Pages : 391
Book Description
The second edition of this authoritative textbook continues the tradition of providing clear and concise descriptions of the new and classic concepts in financial theory. The authors keep the theory accessible by requiring very little mathematical background. First edition published by Prentice-Hall in 2001- ISBN 0130174467. The second edition includes new structure emphasizing the distinction between the equilibrium and the arbitrage perspectives on valuation and pricing, as well as a new chapter on asset management for the long term investor. "This book does admirably what it sets out to do - provide a bridge between MBA-level finance texts and PhD-level texts.... many books claim to require little prior mathematical training, but this one actually does so. This book may be a good one for Ph.D students outside finance who need some basic training in financial theory or for those looking for a more user-friendly introduction to advanced theory. The exercises are very good." --Ian Gow, Student, Graduate School of Business, Stanford University Completely updated edition of classic textbook that fills a gap between MBA level texts and PHD level texts Focuses on clear explanations of key concepts and requires limited mathematical prerequisites Updates includes new structure emphasizing the distinction between the equilibrium and the arbitrage perspectives on valuation and pricing, as well as a new chapter on asset management for the long term investor
Author: John W. Kensinger Publisher: Emerald Group Publishing ISBN: 178743270X Category : Business & Economics Languages : en Pages : 223
Book Description
The broad theme of this volume of Research in Finance is "Comparing the Influence upon Equity Valuation of Strategy Compared with Cash Flow Expectations." Contributions assess the strong role of strategy in equity valuation, compared with valuation of expected dividends.
Author: John Y. Campbell Publisher: OUP Oxford ISBN: 019160691X Category : Business & Economics Languages : en Pages : 272
Book Description
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Author: Thomas W. Downs Publisher: ISBN: Category : Languages : en Pages :
Book Description
We relate the cross-section of stock returns to firm size, beta, and total risk. We find that as extreme monthly security returns are censored from the data, the significance level decreases rapidly for the size variable and increases for beta and total risk. An analysis of up and down-markets reaffirms our findings. Consequently, average returns relate positively with beta, negatively with total risk, and not at all with firm size. We infer that investors willingly accept a lower average return on high total risk investments as the trade-off for buying a chance at an extreme positive return.
Author: Shelly Howton
Author: Shelly Howton
Author: Devraj Basu
Author: Hossein Asgharian
Author: James W. Kolari
Author: Jean-Pierre Danthine
Author: Hui Guo
Author: Vinod Chandrashekaran
Author: John W. Kensinger
Author: John Y. Campbell
Author: Thomas W. Downs