Download or read book Advances in consumption based asset pricing empirical tests written by Sydney C. Ludvigson and published by . This book was released on 2011 with total page 125 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The last 15 years has brought forth an explosion of research on consumption-based asset pricing as a leading contender for explaining aggregate stock market behavior. This research has propelled further interest in consumption-based asset pricing, as well as some debate. This chapter surveys the growing body of empirical work that evaluates today's leading consumption-based asset pricing theories using formal estimation, hypothesis testing, and model comparison. In addition to summarizing the findings and debate, the analysis seeks to provide an accessible description of a few key econometric methodologies for evaluating consumption-based models, with an emphasis on method-of-moments estimators. Finally, the chapter offers a prescription for future econometric work by calling for greater emphasis on methodologies that facilitate the comparison of multiple competing models, all of which are potentially misspecified, while calling for reduced emphasis on individual hypothesis tests of whether a single model is specified without error

Download or read book Empirical Tests of Consumption based Asset Pricing Models Using Household level Consumption Data written by Nataliya Polkovnichenko and published by . This book was released on 2008 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Consumption Based Asset Pricing Part 1 written by Douglas T. Breeden and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Consumption Based Asset Pricing written by Baptiste Truchot and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: The equilibrium approach to asset pricing is born with the Capital Asset Pricing Model (CAPM) of Sharpe ([Sha64]) and Lintner ([Lin65]), based on the works of Markowitz on diversification and portfolio theory ([Mar52], [Mar56]). Since then, most theoretical and empirical developments take place in a well established framework, the consumption-based paradigm. Though an integral part of modern macroeconomics, it has difficulties explaining stylized facts of asset pricing, at least in its canonical form. The most famous example is its inability to explain the high observed equity premia, or the “equity premium puzzle” as coined by Rajnish Mehra and Edward C. Prescott ([MP85]). We survey the empirical inconsistencies of the standard paradigm and the numerous extensions aiming at adressing those empirical shortcomings. The emphasis is on the heterogeneous consumption-based models. They constitute indeed a very promising line of research, both due to the relevance of the results and the theoretical appeal of the underlying assumptions. Moreover, the seminal reviews of the field devote little attention to these developments because, to a large extent, they appeared very recently. This report does not claim to be a comprehensive survey of this literature but an overview of the different approaches, their assumptions and their contributions, in the extended consumption-based paradigm.

Download or read book The Predictability Implied by Consumption Based Asset Pricing Models written by Jiun-Lin Chen and published by . This book was released on 2018 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The consumption-based models have a lack of predictive power for explaining variability of stock returns. This paper examines two well-known models, Campbell and Cochrane (1999)'s habit model and Bansal and Yaron (2004)'s long-run risks model, to see whether they produce a significant power of return predictability. For the habit model, empirical tests reveal that the state variable, the surplus consumption ratio, explains counter-cyclical time-varying expected returns. The long-run risks model also proves to explain that main sources of volatility in price-dividend ratio are a persistent and predictable consumption growth rate and fluctuating economic uncertainty. The models are also tested by following the work of Kirby (1998) whether they can explain the observed return predictability. Both models fail to generate any significant predictive power. The habit model is relatively strong in volatility, which implies that variation in expected excess return is largely attributable to the time-varying risk aversion.

Download or read book Consumption Based Asset Pricing Part 2 written by Douglas T. Breeden and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Following Part 1 of this article, which reviews late-1970s to 1990s classic derivations and tests of the consumption capital asset pricing model, here in Part 2 we review more recent developments, some of which are based on utility functions with non-time-separable preferences. Important second-generation consumption-based asset pricing advances are also reviewed, including models with habit formation and long-run risk. These models give large cyclical changes in relative risk aversion and risk premiums as well as lagged impacts of aggregate consumption changes on risk premiums. We review asset pricing with rare disasters and models focused on consumer spending on durables and real estate, as well as the fraction of spending financed by labor income. The second-generation models discussed have more free parameters and fit the empirical data better than did the first-generation consumption-based asset pricing models.

Download or read book Empirical Tests of the Utility based Asset Pricing Model Using Temporally Aggregated Twentieth Century Data written by Peter Allan Muoio and published by . This book was released on 1988 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Asset Pricing with Heterogeneous Consumers and Limited Participation written by Alon Brav and published by . This book was released on 2002 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present evidence that the equity premium and the premium of value stocks over growth stocks are explained in the 1982 1996 period with a stochastic discount factor (SDF) calculated as the weighted average of individual households' marginal rate of substitution with low and economically plausible values of the relative risk aversion (RRA) coefficient. Household consumption of non-durables and services is reconstructed from the CEX database. Since the above premia are not explained with a SDF calculated as the per capita marginal rate of substitution with low value of the RRA coefficient, the evidence supports the hypothesis of incomplete consumption insurance. We also present evidence is that a SDF calculated as the per capita marginal rate of substitution is better able to explain the equity premium and does so with a lower value of the RRA coefficient, as the definition of asset holders is tightened to recognize the limited participation of households in the capital market.

Download or read book Asset Pricing and Production written by Gopalakrishnan Sharathchandra and published by . This book was released on 1989 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Empirical Asset Pricing written by Wayne Ferson and published by MIT Press. This book was released on 2019-03-26 with total page 497 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book The Capital Asset Pricing Model written by Fischer Black and published by . This book was released on 1972 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book An Empirical Investigation of Consumption based Asset Pricing Models with Stochastic Habit Formation written by Qiang Dai and published by . This book was released on 2011 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Aggregate Consumption and Asset Pricing written by Joanna Wayland Woos and published by . This book was released on 1992 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Empirical Tests of the Capital Asset Pricing Model written by Ali Jahankhani and published by . This book was released on 1977 with total page 320 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Asset Pricing Models written by Yan Li and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book The Capital Asset Pricing Model written by Michael C. Jensen and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Empirical Tests of Asset Pricing Models Based on Analysts Forecasts written by Ruoling Shen and published by . This book was released on 2014 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: