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Using Expectations to Test Asset Pricing Models

Using Expectations to Test Asset Pricing Models PDF Author: Alon Brav
Publisher:
ISBN:
Category :
Languages : en
Pages : 46

Book Description
This paper uses ex-ante measures of expected return and provides evidence on the relation between expected returns and the pricing of assets in financial markets. An investigation into the relation between expected returns and assets' characteristics is a way to test asset pricing models without the assumption that realized return is an unbiased proxy for ex-ante expected asset returns. We find a positive and robust relation between expected return and market beta and a negative relation between expected return and firm size, consistent with the notion that these are risk factors. We find that high book-to-market firms are not expected to earn higher returns than low book-to-market firms, inconsistent with the notion that book-to-market is a risk factor.

Using Expectations to Test Asset Pricing Models

Using Expectations to Test Asset Pricing Models PDF Author: Alon Brav
Publisher:
ISBN:
Category :
Languages : en
Pages : 46

Book Description
This paper uses ex-ante measures of expected return and provides evidence on the relation between expected returns and the pricing of assets in financial markets. An investigation into the relation between expected returns and assets' characteristics is a way to test asset pricing models without the assumption that realized return is an unbiased proxy for ex-ante expected asset returns. We find a positive and robust relation between expected return and market beta and a negative relation between expected return and firm size, consistent with the notion that these are risk factors. We find that high book-to-market firms are not expected to earn higher returns than low book-to-market firms, inconsistent with the notion that book-to-market is a risk factor.

Testing Asset Pricing Models Using Market Expectations

Testing Asset Pricing Models Using Market Expectations PDF Author: Jozef Drienko
Publisher:
ISBN:
Category : Capital assets pricing model
Languages : en
Pages : 184

Book Description
We investigate the use of market-based expectations to test the CAPM and the conditional CAPM using a generalised method of moments framework. This method is valid under much weaker distributional assumptions and provides the procedure with robustness that commonly employed tests lack. Expected returns are derived from projected price levels of individual securities that are supplied in the form of twelvemonth consensus (median) target price forecasts. The annual forecasts, updated each month, are combined with dividend expectations to calculate the necessary time series of continuous expected returns. As such, we are able to avoid the use of instrumental variable models that, we argue, are likely to suffer from overfitting data concerns. In fact, we find that expected returns estimated from analyst data, while certainly not perfect, provide a better fit in comparison to the existing instrumental variable models.

Testing Asset Pricing Models with Changing Expectations and an Unobservable Market Portfolio

Testing Asset Pricing Models with Changing Expectations and an Unobservable Market Portfolio PDF Author: Michael R. Gibbons
Publisher:
ISBN:
Category : Securities
Languages : en
Pages : 76

Book Description


Tests of Asset Pricing Models with Changing Expectations

Tests of Asset Pricing Models with Changing Expectations PDF Author: Wayne Ferson
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 29

Book Description


New Tests of Expectation Formation with Applications to Asset Pricing Models

New Tests of Expectation Formation with Applications to Asset Pricing Models PDF Author: Pei Kuang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

Book Description
We develop new tests for expectation formation in financial and macroeconomic models under various informational assumptions. Survey data suggests stock price forecasts are not anchored by consumption forecasts and rejects this aspect of the formation of stock price expectations in a wide range of asset pricing models. The evidence casts some doubt on the modeling of expectation formation in the asset pricing models which assume agents possess the knowledge of the equilibrium pricing function as in Rational Expectations and Bayesian Rational Expectations models. Relaxing this knowledge appears necessary for models to reconcile the survey evidence and potential resolutions are discussed.

Asset Pricing Models with Changing Expectations

Asset Pricing Models with Changing Expectations PDF Author: Stephen Robert Foerster
Publisher: Ann Arbor, Mich. : University Microfilms International
ISBN:
Category : Finance - Penn dissertations
Languages : en
Pages : 98

Book Description


Empirical Asset Pricing

Empirical Asset Pricing PDF 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.

Expectations Data in Asset Pricing

Expectations Data in Asset Pricing PDF Author: Klaus Adam
Publisher:
ISBN:
Category : Assets (Accounting)
Languages : en
Pages :

Book Description
Asset prices reflect investors' subjective beliefs about future cash flows and prices. In this chapter, we review recent research on the formation of these beliefs and their role in asset pricing. Return expectations of individual and professional investors in surveys differ markedly from those implied by rational expectations models. Variation in subjective expectations of future cash flows and price levels appear to account for much of aggregate stock market volatility. Mapping the survey evidence into agent expectations in asset pricing models is complicated by measurement errors and belief heterogeneity. Recent efforts to build asset pricing models that match the survey evidence on subjective belief dynamics include various forms of learning about payout or price dynamics, extrapolative expectations, and diagnostic expectations. Challenges for future research include the exploration of subjective risk perceptions, aggregation of measured beliefs, and links between asset market expectations and the macroeconomy.

Rational Expectations and the Capital Asset Pricing Model

Rational Expectations and the Capital Asset Pricing Model PDF Author: Robert K. Rayner
Publisher:
ISBN:
Category : Capital assets pricing model
Languages : en
Pages : 52

Book Description


Asset Pricing Theory

Asset Pricing Theory PDF 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