Rational Expectations and the Capital Asset Pricing Model PDF Download

Author: Robert K. Rayner
Publisher:
ISBN:
Category : Capital assets pricing model
Languages : en
Pages : 52

View

Book Description

Author: Andrei Semenov
Publisher:
ISBN:
Category :
Languages : en
Pages : 20

View

Book Description
We investigate the potential of the consumption CAPM with pessimism, doubt, and the availability heuristic in the agent's beliefs to resolve the equity premium and risk-free rate puzzles. Using the nonlinear GMM estimation techniques, we find that doubt and the availability heuristic play an important role in explaining the cross-section of asset returns. However, when taken alone, these deviations from rational expectations can not resolve the equity premium and risk-free rate puzzles. This result is robust to the assumption that the expected value of an uncertain prospect is nonlinear in the subjective outcome probabilities.

Author: Ser-Huang Poon
Publisher: OUP Oxford
ISBN: 0191533890
Category : Business & Economics
Languages : en
Pages : 156

View

Book Description
Relying on the existence, in a complete market, of a pricing kernel, this book covers the pricing of assets, derivatives, and bonds in a discrete time, complete markets framework. It is primarily aimed at advanced Masters and PhD students in finance. — Covers asset pricing in a single period model, deriving a simple complete market pricing model and using Stein's lemma to derive a version of the Capital Asset Pricing Model. — Looks more deeply into some of the utility determinants of the pricing kernel, investigating in particular the effect of non-marketable background risks on the shape of the pricing kernel. — Derives the prices of European-style contingent claims, in particular call options, in a one-period model; derives the Black-Scholes model assuming a lognormal distribution for the asset and a pricing kernel with constant elasticity, and emphasizes the idea of a risk-neutral valuation relationship between the price of a contingent claim on an asset and the underlying asset price. — Extends the analysis to contingent claims on assets with non-lognormal distributions and considers the pricing of claims when risk-neutral valuation relationships do not exist. — Expands the treatment of asset pricing to a multi-period economy, deriving prices in a rational expectations equilibrium. — Uses the rational expectations framework to analyse the pricing of forward and futures contracts on assets and derivatives. — Analyses the pricing of bonds given stochastic interest rates, and then uses this methodology to model the drift of forward rates, and as a special case the drift of the forward London Interbank Offer Rate in the LIBOR Market Model.

Author: Jérôme Detemple
Publisher:
ISBN:
Category :
Languages : en
Pages : 38

View

Book Description

Author: Edward M. Rice
Publisher:
ISBN:
Category : Capital assets pricing model
Languages : en
Pages : 54

View

Book Description
Recent work by Richard Roll has challenged the worth of portfolio performance measures based on the capital asset pricing model. This paper demonstrates that Roll's conclusions are due to his inappropriate use of a 'truly' ex-ante efficient index. Using a choice and information theoretic framework, an appropriate index is shown to be efficient relative to to the probabilities assessed by the 'market.' Residual analyses and portfolio performance tests, using such an index, yield meaningful results for a wide class of information structures. Roll's primary criticisms, however, relate to tests of the model itself. We argue that these criticisms are vastly overstated.

Author: Peter Heemeijer
Publisher: Rozenberg Publishers
ISBN: 9036101158
Category :
Languages : en
Pages : 308

View

Book Description

Author: Amin H. Amershi
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 76

View

Book Description

Author: Haim Levy
Publisher: Cambridge University Press
ISBN: 1139503022
Category : Business & Economics
Languages : en
Pages : 457

View

Book Description
The Capital Asset Pricing Model (CAPM) and the mean-variance (M-V) rule, which are based on classic expected utility theory, have been heavily criticized theoretically and empirically. The advent of behavioral economics, prospect theory and other psychology-minded approaches in finance challenges the rational investor model from which CAPM and M-V derive. Haim Levy argues that the tension between the classic financial models and behavioral economics approaches is more apparent than real. This book aims to relax the tension between the two paradigms. Specifically, Professor Levy shows that although behavioral economics contradicts aspects of expected utility theory, CAPM and M-V are intact in both expected utility theory and cumulative prospect theory frameworks. There is furthermore no evidence to reject CAPM empirically when ex-ante parameters are employed. Professionals may thus comfortably teach and use CAPM and behavioral economics or cumulative prospect theory as coexisting paradigms.

Author: Joseph Leonard Faber
Publisher:
ISBN:
Category : Capital assets pricing model
Languages : en
Pages : 168

View

Book Description

Author: Mr.Lorenzo Giorgianni
Publisher: International Monetary Fund
ISBN: 1451849222
Category : Business & Economics
Languages : en
Pages : 21

View

Book Description
This paper presents a method to test the volatility predictions of the textbook asset-pricing exchange rate model, which imposes minimal structure on the data and does not commit to a choice of exchange rate “fundamentals.” Our method builds on existing tests of excess volatility in asset prices, combining them with a procedure that extracts unobservable fundamentals from survey-based exchange rate expectations. We apply our method to data for the three major exchange rates since 1984 and find broad evidence of excess exchange rate volatility with respect to the predictions of the canonical asset-pricing model in an efficient market.