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Author: Narasimhan Jegadeesh Publisher: ISBN: Category : Languages : en Pages : 86
Book Description
To attenuate an inherent errors-in-variables bias, portfolios are widely employed to test asset pricing models; but portfolios might mask relevant risk- or return-related features of individual assets. We propose an instrumental variables approach that allows the use of individual stocks as test assets, yet delivers consistent estimates of ex-post risk premiums. This estimator also yields well-specified tests in small samples. The market risk premium under the CAPM and the liquidity-adjusted CAPM, premiums on risk factors under the Fama-French three- and five-factors models and the Hou, Xue, and Zhang (2015) four-factor model are all insignificant after controlling for asset characteristics.
Author: Narasimhan Jegadeesh Publisher: ISBN: Category : Languages : en Pages : 86
Book Description
To attenuate an inherent errors-in-variables bias, portfolios are widely employed to test asset pricing models; but portfolios might mask relevant risk- or return-related features of individual assets. We propose an instrumental variables approach that allows the use of individual stocks as test assets, yet delivers consistent estimates of ex-post risk premiums. This estimator also yields well-specified tests in small samples. The market risk premium under the CAPM and the liquidity-adjusted CAPM, premiums on risk factors under the Fama-French three- and five-factors models and the Hou, Xue, and Zhang (2015) four-factor model are all insignificant after controlling for asset characteristics.
Author: Narasimhan Jegadeesh Publisher: ISBN: Category : Languages : en Pages : 54
Book Description
We develop an instrumental variables methodology to obtain consistent estimates of risk premiums using individual stocks as test assets. Simulation evidence indicates that this methodology yields unbiased estimates of risk premiums and that the associated tests are well specified in small samples. We test a number of recently proposed asset pricing models using this approach. We find that the CAPM market risk, SMB and HML factors risks, investment and ROE factors risks under the production-based asset pricing model and the LCAPM illiquidity-adjusted market risk are not priced.
Author: Jau-Lian Jeng Publisher: Springer ISBN: 3319741926 Category : Business & Economics Languages : en Pages : 277
Book Description
This book analyzes the verification of empirical asset pricing models when returns of securities are projected onto a set of presumed (or observed) factors. Particular emphasis is placed on the verification of essential factors and features for asset returns through model search approaches, in which non-diversifiability and statistical inferences are considered. The discussion reemphasizes the necessity of maintaining a dichotomy between the nondiversifiable pricing kernels and the individual components of stock returns when empirical asset pricing models are of interest. In particular, the model search approach (with this dichotomy emphasized) for empirical model selection of asset pricing is applied to discover the pricing kernels of asset returns.
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: Philip R. Davies Publisher: ISBN: 9780549076537 Category : Languages : en Pages : 119
Book Description
In the first essay I develop a Bayesian approach to test the cross-sectional predictions of the CAPM at the firm level. Using a broad cross-section of NYSE, AMEX, and NASDAQ listed stocks over the period July 1927--June 2005, I find evidence of a robust positive relation between beta and average returns. Fama and French (1993) propose two additional risk factors related to firm size and book-to-market equity. I find no evidence that these additional risk factors help to explain the cross-sectional variation in average returns. These results are consistent with the empirical predictions of the CAPM.
Author: Yan Li Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
My dissertation contains three chapters. Chapter one proposes a nonparametric method to evaluate the performance of a conditional factor model in explaining the cross section of stock returns. There are two tests: one is based on the individual pricing error of a conditional model and the other is based on the average pricing error. Empirical results show that for valueweighted portfolios, the conditional CAPM explains none of the asset-pricing anomalies, while the conditional Fama-French three-factor model is able to account for the size effect, and it also helps to explain the value effect and the momentum effect. From a statistical point of view, a conditional model always beats a conditional one because it is closer to the true data-generating process. Chapter two proposes a general equilibrium model to study the implications of prospect theory for individual trading, security prices and trading volume. Its main finding is that different components of prospect theory make different predictions. The concavity/convexity of the value function drives a disposition effect, which in turn leads to momentum in the cross-section of stock returns and a positive correlation between returns and volumes. On the other hand, loss aversion predicts exactly the opposite, namely a reversed disposition effect and reversal in the cross-section of stock returns, as well as a negative correlation between returns and volumes. In a calibrated economy, when prospect theory preference parameters are set at the values estimated by the previous studies, our model can generate price momentum of up to 7% on an annual basis. Chapter three studies the role of aggregate dividend volatility in asset prices. In the model, narrow-framing investors are loss averse over fluctuations in the value of their financial wealth. Persistent dividend volatility indicates persistent fluctuation in their financial wealth and makes stocks undesirable. It helps to explain the salient feature of the stock market including the high mean, excess volatility, and predictability of stock returns while maintaining a low and stable risk-free rate. Consistent with the data, stock returns have a low correlation with consumption growth, and Sharpe ratios are time-varying.
Author: Narasimhan Jegadeesh
Author: Narasimhan Jegadeesh
Author: Narasimhan Jegadeesh
Author: Jau-Lian Jeng
Author: Wayne Ferson
Author: Philip R. Davies
Author: Nataliya Polkovnichenko
Author: Ruoling Shen
Author: Yan Li
Author: Michael C. Jensen
Author: Ali Jahankhani