Time-stratified Estimates of Portfolio Betas and Their Effect on the Capital Asset Pricing Model PDF Download

Author: William R. Kinney
Publisher:
ISBN:
Category : Capital assets pricing model
Languages : en
Pages : 40

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Author: Kinney, Jr. (William R.)
Publisher:
ISBN:
Category :
Languages : en
Pages : 22

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Book Description
This paper shows that large efficiency gains in estimating portfolio betas can be achieved by using time-stratified estimates which explicitly incorporate seasonality in stock returns. Several types of estimates are examined: combined, separate, two strata and twelve strata. Not only do these estimates greatly reduce standard errors, but also time-stratified beta estimates raise the intercept and lower the slope in estimates of the capital market line.

Author: Diana R. Harrington
Publisher: Prentice Hall
ISBN:
Category : Business & Economics
Languages : en
Pages : 242

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Author: Ralf Östermark
Publisher:
ISBN: 9789516494145
Category :
Languages : en
Pages : 3

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Author: Michael Chak-sham Wong
Publisher:
ISBN:
Category : Capital assets pricing model
Languages : en
Pages : 38

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

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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: Wayne Alan Fairburn
Publisher:
ISBN:
Category : Stock price forecasting
Languages : en
Pages : 166

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Author: Yongho Seo
Publisher:
ISBN:
Category : Finance
Languages : en
Pages :

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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: Michael Stokie
Publisher:
ISBN:
Category :
Languages : en
Pages : 28

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Book Description

Author: Wayne Ferson
Publisher: MIT Press
ISBN: 0262039370
Category : Business & Economics
Languages : en
Pages : 497

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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.