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Author: Yongho Seo Publisher: ISBN: Category : Finance Languages : en Pages :
Book Description
It has been observed that the value of an asset's beta varies with the frequency of the data used to generate the value, a phenomenon hereafter referred to as "time scale", or simply "scale". If the scale effect is strong enough, then ignoring this phenomenon calls into question studies that rely on comparing beta values. The most notable of these studies is the classification of stocks as "aggressive" or "defensive". I show that such a categorization varies substantially when comparing betas estimated using monthly data versus annual data. Contrary to other studies, betas do not vary monotonically as data scale lengthens. Betas measured on a trailing forty eight month return series with a quarterly time scale explained expected stock returns better than other month data lengths and frequencies. Between 1926 and 2009, beta was able to explain expected returns in 79.1% of rolling estimation periods. Firm size is another important scaling factor that can impact beta measurement. I therefore study stock growth rates based on the size of the underlying firm. I show that cumulative growth factors extracted from firm size are related to Macaulay duration. Smaller firms have a higher duration, and this is shown to explain the small firm effect. Duration relates to reinvestment risk. Using a firm's duration, investors are able to generate home-made dividends when they rebalance their portfolios.
Author: Yongho Seo Publisher: ISBN: Category : Finance Languages : en Pages :
Book Description
It has been observed that the value of an asset's beta varies with the frequency of the data used to generate the value, a phenomenon hereafter referred to as "time scale", or simply "scale". If the scale effect is strong enough, then ignoring this phenomenon calls into question studies that rely on comparing beta values. The most notable of these studies is the classification of stocks as "aggressive" or "defensive". I show that such a categorization varies substantially when comparing betas estimated using monthly data versus annual data. Contrary to other studies, betas do not vary monotonically as data scale lengthens. Betas measured on a trailing forty eight month return series with a quarterly time scale explained expected stock returns better than other month data lengths and frequencies. Between 1926 and 2009, beta was able to explain expected returns in 79.1% of rolling estimation periods. Firm size is another important scaling factor that can impact beta measurement. I therefore study stock growth rates based on the size of the underlying firm. I show that cumulative growth factors extracted from firm size are related to Macaulay duration. Smaller firms have a higher duration, and this is shown to explain the small firm effect. Duration relates to reinvestment risk. Using a firm's duration, investors are able to generate home-made dividends when they rebalance their portfolios.
Author: Douglas T. Breeden Publisher: ISBN: Category : Languages : en Pages :
Book Description
This article, Part 1 of 2, reviews the classical origins, development, and tests of consumption-based asset pricing theory, focusing mainly on the first two decades from 1976 to 1998. Starting with the original consumption capital asset pricing model (CCAPM) derivations, we review both theory and subsequent tests and provide some new applications. The consumption aggregation theorem and CCAPM are derived, and optimal consumption and portfolio strategies are discussed. The term structure of interest rates is derived from the term structures for expected growth, volatility, and inflation. Time aggregation biases in consumption betas as well as the usefulness of the “consumption-mimicking portfolio” are also derived. In addition to various empirical tests, models and tests of limited participation in asset markets as well as models of incomplete markets are presented. When certain measurement issues are taken into account, the CCAPM performs better than the original CAPM and nearly as well as the Fama-French three-factor model.
Author: Mohammad Sharifzadeh Publisher: Universal-Publishers ISBN: 1599423758 Category : Languages : en Pages : 180
Book Description
The problem addressed in this dissertation research was the inability of the single-factor capital asset pricing model (CAPM) to identify relevant risk factors that investors consider in forming their return expectations for investing in individual stocks. Identifying the appropriate risk factors is important for investment decision making and is pertinent to the formation of stocks' prices in the stock market. Therefore, the purpose of this study was to examine theoretical and empirical validity of the CAPM and to develop and test a multifactor model to address and resolve the empirical shortcomings of the single-factor CAPM. To verify the empirical validity of the standard CAPM and of the multifactor model, five hypotheses were developed and tested against historical monthly data for U.S. public companies. Testing the CAPM hypothesis revealed that the explanatory power of the overall stock market rate of return in explaining individual stock's expected rates of return is very weak, suggesting the existence of other risk factors. Testing of the other hypotheses verified that the implied volatility of the overall market as a systematic risk factor and the companies' size and financial leverage as nonsystematic risk factors are important in determining stock's expected returns and investors should consider these factors in their investment decisions. The findings of this research have important implications for social change. The outcome of this study can change the way individual and institutional investors as well as corporations make investment decisions and thus change the equilibrium prices in the stock market. These changes in turn could lead to significant changes in the resource allocation in the economy, in the economy's production capacity and production composition, and in the employment structure of the society.
Author: Manuel Kürschner Publisher: GRIN Verlag ISBN: 3638073300 Category : Business & Economics Languages : en Pages : 41
Book Description
Research Paper (undergraduate) from the year 2008 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, University of Cooperative Education, language: English, abstract: The objective of this paper is to give an overview of the most important movements of the complex area of asset pricing. This will be tried by logically structuring and building up the topic from its origins, the Capital Asset Pricing Model, and then over its main points of critique, in order to arrive at the different options developed by financial science that try to resolve those problematic aspects. Due to the complexity of this subject and the limited scope of this paper, obviously it will not be possible to discuss each model or movement in depth. Coherently, the aim is to point out the main thoughts of each aspect discussed. For further information, especially concerning the deeper mathematical backgrounds and derivations of the models, the author would like to refer the reader to the books mentioned in this paper. Many of those works, finance journal publications and the literature on asset pricing in general, set their focus on different parts of this paper, which again underlines the complexity in terms of scientific scope and intellectual and mathematical intricacy of this topic.
Author: John Y. Campbell Publisher: Princeton University Press ISBN: 1400830214 Category : Business & Economics Languages : en Pages : 630
Book Description
The past twenty years have seen an extraordinary growth in the use of quantitative methods in financial markets. Finance professionals now routinely use sophisticated statistical techniques in portfolio management, proprietary trading, risk management, financial consulting, and securities regulation. This graduate-level textbook is intended for PhD students, advanced MBA students, and industry professionals interested in the econometrics of financial modeling. The book covers the entire spectrum of empirical finance, including: the predictability of asset returns, tests of the Random Walk Hypothesis, the microstructure of securities markets, event analysis, the Capital Asset Pricing Model and the Arbitrage Pricing Theory, the term structure of interest rates, dynamic models of economic equilibrium, and nonlinear financial models such as ARCH, neural networks, statistical fractals, and chaos theory. Each chapter develops statistical techniques within the context of a particular financial application. This exciting new text contains a unique and accessible combination of theory and practice, bringing state-of-the-art statistical techniques to the forefront of financial applications. Each chapter also includes a discussion of recent empirical evidence, for example, the rejection of the Random Walk Hypothesis, as well as problems designed to help readers incorporate what they have read into their own applications.
Author: Shannon P. Pratt Publisher: John Wiley & Sons ISBN: 9780470223710 Category : Business & Economics Languages : en Pages : 448
Book Description
In this long-awaited Third Edition of Cost of Capital: Applications and Examples, renowned valuation experts and authors Shannon Pratt and Roger Grabowski address the most controversial issues and problems in estimating the cost of capital. This authoritative book makes a timely and significant contribution to the business valuation body of knowledge and is an essential part of the expert's library.
Author: William F. Sharpe Publisher: McGraw-Hill Companies ISBN: 9780071353205 Category : Capital Languages : en Pages : 0
Book Description
"Thirty years ago, Portfolio Theory and Capital Markets laid the groundwork for today's investment standards, from modern portfolio theory to derivatives, pricing and investment, equity index funds, and more. By providing invaluable insights into the Capital Asset Pricing Model (CAPM) and introducing such innovations as the Sharpe Ratio, Dr. William Sharpe established himself as one of the most influential financial minds of the twentieth century. Now, in Portfolio Theory and Capital Markets, The Original Edition, complete with a new foreword written by Dr. Sharpe, McGraw-Hill reintroduces this essential book - and places its lessons in a meaningful context for modern investors throughout the world."--BOOK JACKET.Title Summary field provided by Blackwell North America, Inc. All Rights Reserved
Author: Costis Skiadas Publisher: Princeton University Press ISBN: 1400830141 Category : Business & Economics Languages : en Pages : 363
Book Description
Asset Pricing Theory is an advanced textbook for doctoral students and researchers that offers a modern introduction to the theoretical and methodological foundations of competitive asset pricing. Costis Skiadas develops in depth the fundamentals of arbitrage pricing, mean-variance analysis, equilibrium pricing, and optimal consumption/portfolio choice in discrete settings, but with emphasis on geometric and martingale methods that facilitate an effortless transition to the more advanced continuous-time theory. Among the book's many innovations are its use of recursive utility as the benchmark representation of dynamic preferences, and an associated theory of equilibrium pricing and optimal portfolio choice that goes beyond the existing literature. Asset Pricing Theory is complete with extensive exercises at the end of every chapter and comprehensive mathematical appendixes, making this book a self-contained resource for graduate students and academic researchers, as well as mathematically sophisticated practitioners seeking a deeper understanding of concepts and methods on which practical models are built. Covers in depth the modern theoretical foundations of competitive asset pricing and consumption/portfolio choice Uses recursive utility as the benchmark preference representation in dynamic settings Sets the foundations for advanced modeling using geometric arguments and martingale methodology Features self-contained mathematical appendixes Includes extensive end-of-chapter exercises
Author: Yongho Seo
Author: Yongho Seo
Author: Douglas T. Breeden
Author: Mohammad Sharifzadeh
Author: Manuel Kürschner
Author: John Y. Campbell
Author: Shannon P. Pratt
Author: William F. Sharpe
Author: 
Author: Costis Skiadas
Author: John H. Cochrane