Download or read book An Empirical Study of a Conditional International Asset Pricing Model for US Japanese and European Stock and Government Bond Markets written by Tom Arild Fearnley and published by . This book was released on 2002 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation consists of three papers dedicated to empirical tests of a multivariate conditional international Capital Asset Pricing Model (CAPM). The aim is to evaluate to what extent such a model can explain stock and government bond returns in the US, Japan and Europe over the last 10 to 15 years, and whether the model can be usefully employed in global tactical asset allocation. The starting point is the international CAPM of Adler and Dumas (1983), which is made conditional through a multivariate GARCH-in-mean specification. The additional assumption that local inflation rates are zero or deterministic reduces inflation risk premia to currency risk premia. Data are analyzed at weekly frequency. The first paper introduces regime switching GARCH parameters. The second paper adds government bonds to the analysis, and evaluates four different models for the price of market risk. The third paper introduces regime switching prices of risk and intercept terms.

Download or read book Estimation of an International Capital Asset Pricing Model with Stocks and Government Bonds written by Tom Arild Fearnley and published by . This book was released on 2004 with total page 123 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper investigates whether US, Japanese and European stock and government bond return indices are jointly priced within a conditional multivariate form of the international Capital asset Pricing Model during the period 1993-2001. It also explores the time variation of the price of market risk within this framework, allowing for a structural change in the prices of market and currency risk. The corresponding conditional optimal portfolio weights are compared with the observed market capitalization weights of the assets. The agreement is found to be better for the stock markets than for the bond markets. Finally, out-of-sample performance of the conditional optimal portfolio is measured relative to the market portfolio of stocks and bonds.

Download or read book Tests of an International Capital Asset Pricing Model with Stocks and Government Bonds and Regime Switching Prices of Risk and Intercepts written by Tom Arild Fearnley and published by . This book was released on 2004 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper tests a conditional multivariate International Capital Asset Pricing Model for US, Japanese and European stocks and government bonds, covering the period 1993-2001. Time variation in the prices of market and currency risk is modelled by means of synchronous regime switching. The paper also explores the statistical significance and time variation of asset specific intercept terms, again using synchronous regime switching. The prices of risk are found to be highly time varying. The price of market risk is statistically significant, and the international CAPM risk premia are validated, although currency risk premia are not statistically significant. However, the intercept terms are typically large and significant, implying an overall rejection of the international CAPM, and suggesting that additional, unidentified pricing factors contribute to return expectations.

Download or read book The World Price of Foreign Exchange Risk written by Bernard Dumas and published by . This book was released on 1993 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider a world capital market in which the investor population is heterogenous. Investors of different countries differ in the prices of goods at which they consume the income from their investments. In such a setting, the international CAPM incorporates rewards for exchange rate risk, in addition to the traditional reward for market-covariance risk. The aim of the paper is to determine whether these additional risk premia empirically playa significant role in the pricing of securities. The test being conducted is a test of a conditional version of the CAPM. It builds on the recent empirical literature which points out that stock market returns may, to some extent, be predicted on the basis of a number of instrumental variables, such as interest rates and dividend yields. All previous tests of the international CAPM with exchange risk premia have been tests of the unconditional version and have been inconclusive.

Download or read book Three Essays on International Stock and Bond Markets written by DongJoon Jeong and published by . This book was released on 1993 with total page 346 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Empirical Asset Pricing written by Xiang Zhang and published by . This book was released on 2013 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays on empirical asset pricing around three themes: evaluating linear factor asset pricing models by comparing their misspecified measures, understanding the long-run risk on consumption-leisure to investigate their pricing performances on cross-sectional returns, and evaluating conditional asset pricing models by using the methodology of dynamic cross-sectional regressions. The first chapter is ̀̀Comparing Asset Pricing Models: What does the Hansen-Jagannathan Distance Tell Us?''. It compares the relative performance of some important linear asset pricing models based on the Hansen-Jagannathan (HJ) distance using data over a long sample period from 1952-2011 based on U.S. market. The main results are as follows: first, among return-based linear models, the Fama-French (1993) five-factor model performs best in terms of the normalized pricing errors, compared with the other candidates. On the other hand, the macro-factor model of Chen, Roll, and Ross (1986) five-factor is not able to explain industry portfolios: its performance is even worse than that of the classical CAPM. Second, the Yogo (2006) non-durable and durable consumption model is the least misspecified, among consumption-based asset pricing models, in capturing the spread in industry and size portfolios. Third, the Lettau and Ludvigson (2002) scaled consumption-based CAPM (C-CAPM) model obtains the smallest normalized pricing errors pricing gross and excess returns on size portfolios, respectively, while Santos and Veronesi (2006) scaled C-CAPM model does better in explain the return spread on portfolios of U.S. government bonds. The second chapter (̀̀Leisure, Consumption and Long Run Risk: An Empirical Evaluation'') uses a long-run risk model with non-separable leisure and consumption, and studies its ability to price equity returns on a variety of portfolios of U.S. stocks using data from 1948-2011. It builds on early work by Eichenbaum et al. (1988) that explores the empirical properties of intertemporal asset pricing models where the representative agent has utility over consumption and leisure. Here we use the framework in Uhlig (2007) that allows for a stochastic discount factor with news about long-run growth in consumption and leisure. To evaluate our long-run model, we assess its performance relative to standard asset pricing models in explaining the cross-section of returns across size, industry and value-growth portfolios. We find that the long-run consumption-leisure model cannot be rejected by the J-statistic and it does better than the standard C-CAPM, the Yogo durable consumption and Fama-French three-factor models. We also rank the normalized pricing errors using the HJ distance: our model has a smaller HJ distance than other candidate models. Our paper is the first, as far as we are aware, to use leisure data with adjusted working hours as a measure of leisure i.e., defined as the difference between a fixed time endowment and the observable hours spent on working, home production, schooling, communication, and personal care (Yang (2010)). The third essay: ̀̀Empirical Evaluation of Conditional Asset Pricing Models: An Economic Perspective'' uses dynamic Fama-MacBeth cross-sectional regressions and tests the performance of several important conditional asset pricing models when allowing for time-varying price of risk. It compares the performance of conditional asset pricing models, in terms of their ability to explain the cross-section of returns across momentum, industry, value-growth and government bond portfolios. We use the new methodology introduced by Adrian et al. (2012). Our main results are as follows: first we find that the Lettau and Ludvigson (2001) conditional model does better than other models in explaining the cross-section of momentum and value-growth portfolios. Second we find that the Piazessi et al. (2007) consumption model does better than others in pricing the cross-section of industry portfolios. Finally, we find that in the case of the cross-section of risk premia on U.S. government bond portfolios the conditional model in Santos and Veronesi (2006) outperforms other candidate models. Overall, however, the Lettau and Ludvigson (2001) model does better than other candidate models. Our main contributions here is using a recently developed method of dynamic Fama-MacBeth regressions to evaluate the performance of leading conditional CAPM (C-CAPM) models in a common set of test assets over the time period from 1951-2012.

Download or read book Conditional Asset Pricing in International Equity Markets written by Thanh Huynh and published by . This book was released on 2017 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests conditional asset pricing models in international markets on value, momentum, and the COMBO anomaly of Asness, Moskowitz, and Pedersen (2013) (AMP). We find that incorporating instruments to capture the time variation in risk exposure can significantly reduce the bias in unconditional alpha documented in recent international studies. Particularly, employing the instrumental variables regression approach of Boguth, Carlson, Fisher, and Simutin (2011) to estimate the conditional Fama-French model can successfully explain returns on COMBO portfolios in North America, Europe, Japan, and the global market. Furthermore, instrumenting the global Fama-French model with lagged component betas can reduce the unconditional AMP's 50-50 COMBO alpha by 11%-72%, pointing to the efficacy of this instrumental variable in international markets. Our findings have important implications for international asset pricing theory.

Download or read book Coupon Effects and the Pricing of Japanese Government Bonds written by Young Ho Eom and published by . This book was released on 1998 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book International Linkages of Japanese Bond Markets written by Hongfang Zhang and published by . This book was released on 2014 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the dynamic patterns of international linkages of the Japanese government bond yields with government bond yields in the US, the UK and Germany during the period from January 1980 to December 2004. Applying the vector autoregression (VAR) model and the vector error correction (VEC) model to monthly observations of nominal bond yields and exchange rate-adjusted bond yields over the 25-year period, this paper provides consistent empirical evidence that the Japanese bond market is independent of other major national bond markets, but it exerts some influence in determining bond yields in bond markets in other major industrial countries. However, since the early 1990, evidence shows that the independence of the Japanese bond market has increased further, while its leading role in global bond markets has been eroded significantly.

Download or read book Evaluating Conditional Asset Pricing Models for the German Stock Market written by Andreas Schrimpf and published by . This book was released on 2008 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the performance of conditional asset pricing models in explaining the German cross-section of stock returns. Our test assets are portfolios sorted by size and book-to-market as in the paper by Fama and French (1993). Our results show that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved substantially when allowing for time-varying parameters of the stochastic discount factor. A conditional CAPM with the term spread as a conditioning variable is able to explain the cross-section of German stock returns about as well as the Fama-French model. Structural break tests do not indicate parameter instability of the model - whereas the reverse is found for the Fama-French model. Unconditional model specifications however do a better job than conditional ones at capturing time-series predictability of the test portfolio returns.

Download or read book Asset Pricing with Time Varying Volatility written by Victor Ng and published by . This book was released on 1989 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Empirical Analysis of Multifactor Asset Pricing Models A Comparison of US and Japanese REITs written by Tim Perschbacher and published by . This book was released on 2023-07-03 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, language: English, abstract: This study is concerned with an empirical analysis of asset pricing. More specifically, this paper examines whether multifactor asset pricing models are able to explain variation in REIT returns in the US and Japan. In addition to traditional multifactor models, an Alternative Four-Factor Model (AFF) was developed considering net profit margin as an additional risk factor. Thence, this paper seeks to provide valuable information for investors and fund managers regarding their indirect real estate investment selection. Using a sample period between July 1994 (US) / July 2011 (Japan) to December 2020, rigorous multiple-time-series regression is applied to calculate factor loadings for each risk factor and the corresponding alpha values of each model to evaluate their effectiveness in explaining variation and cross-section of REIT returns. Most studies on asset pricing models focus on size and value sorted portfolios as dependent variables. This paper broadens the approach with four other double sorted test portfolios to check the robustness of each single factor to explain return anomalies. Results show that market premium and size premium represent risk factors for US-REITs, whereas market premium and value premium are suitable risk factors for Japanese-REITs. The momentum factor does not capture risk and is insignificant in both markets. The study shows low correlations between traditional and REIT specific as well as between US and Japanese risk factors. This suggests that firstly risk factors are country specific and secondly that they are asset specific. Moreover, the Fama-French Three-Factor Model (FF3) clearly outperforms the CAPM, while the Carhart Four-Factor Model (CH4) marginally improves the explanatory power over the FF3. This is observed in both markets. Outcomes demonstrate that the Alternative Four-Factor Model

Download or read book Tests of CAPM on an International Portfolio of Bonds and Stocks written by Charles Engel and published by . This book was released on 1993 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates and tests an international version of the Capital Asset Pricing Model. Investors from the U.S., Germany and Japan choose a portfolio that includes bonds and equities from each of these countries to maximize a function of the mean and variance of returns. Investors in each country evaluate returns in terms of their home currency. The CAPM does have some power in explaining ex ante returns. It predicts fairly large risk premia on the equities, but small ones on bonds. The model is rejected, however, when tested against a more general alternative that allows for more investor heterogeneity than the CAPM.

Download or read book Conditional Asset Pricing and Stock Market Anomalies in Europe written by Rob Bauer and published by . This book was released on 2008 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study provides European evidence on the ability of static and dynamic specifications of the Fama-French (1993) three-factor model to price 25 size-B/M portfolios. In contrast to US evidence, we detect a small-growth premium and find that the size effect is still present in Europe. Furthermore, we document strong time variation in factor risk loadings. Incorporating these risk fluctuations in conditional specifications of the three-factor model clearly improves its ability to explain time variation in expected returns. However, the model still fails to completely capture cross-sectional variation in returns as it is unable to explain the momentum effect.

Download or read book Essays in International Asset Pricing written by Ying Wu and published by . This book was released on 2013 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: The empirical research focuses on the common risk factors in stock returns and trading activities. The first essay is titled "Asset Pricing with Extreme Liquidity Risk". Defining extreme liquidity as the tails of illiquidity for all stocks, I propose a direct measure of market-wide extreme liquidity risk and find that extreme liquidity risk is priced cross-sectionally in the U.S. equity market. From 1973 through 2011, stocks in the highest quintile of extreme liquidity risk loadings earned value-weighted average returns 6.6% per year higher than stocks in the lowest quintile. The extreme liquidity risk premium is robust to common risk factors related to size, value and momentum. The premium is different from that on aggregate liquidity risk documented in Pástor and Stambaugh (2003) as well as that based on tail risk of Kelly (2011). Extreme liquidity estimates can offer a warning sign of extreme liquidity events. Predictive regressions show that extreme liquidity measure reliably outperforms aggregate liquidity measures in predicting future market returns. Finally, I incorporate the extreme liquidity risk into Acharya and Pedersen's (2005) framework and find new supporting evidence for their liquidity-adjusted capital asset pricing model. The second essay is co-authored with Prof. Andrew Karolyi. We have developed a multi-factor returns-generating model for an international setting that captures how restrictions on investability or accessibility can matter. The model works reasonably well in a wide variety of settings. More specifically, using monthly returns for over 37,000 stocks from 46 developed and emerging market countries over a two-decade period, we propose and test a multi-factor model that includes factor portfolios based on firm characteristics and that builds separate factors comprised of globally-accessible stocks, which we call "global factors," and of locally-accessible stocks, which we call "local factors." Our new "hybrid" multi-factor model with both global and local factors not only captures strong common variation in global stock returns, but also achieves low pricing errors and rejection rates using conventional testing procedures for a variety of regional and global test asset portfolios formed on size, value, and momentum. In the third essay, I examine the implications of the Lo and Wang (2000, 2006) mutual fund separation model in the cross-sectional behavior of global trading activity. It demonstrates that return-based factors work poorly around the world. On average across countries, market-wide turnover captures 37% of all systematic turnover components in individual stock trading, and two additional Fama and French (1993) factor turnovers increase the explanatory power by 23%. Similarly Lo and Wang's (2000) turnovers only capture on average 64% of all systematic turnover components. Using this multi-factor asset pricing-trading framework, a horserace is further performed to explore other factors in return by examining the turnover behavior of different factor mimicking portfolios. All the return-based factors capture at most 67% of the common variation in trading, suggesting that stock pricing and trading volume may not be compatible around the world. In cross-country analysis, the explanatory power of the returnbased factor model varies substantially across countries and markets, with better performance for European developed markets and China. Surprisingly, in North America, Japan and most emerging markets there are larger amounts of commonality in trading, mostly higher than 47 %, for reasons other than return motive.

Download or read book Essays in Asset Pricing written by Man Li and published by . This book was released on 2011 with total page 382 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis undertakes empirical and theoretical research in asset pricing in both US and Global financial markets, with a particular focus on the financial impact of socially responsible investment (SRI) and implementation of the ICAPM and CCAPM frameworks in the US market. We aim to provide a comprehensive analysis of the financial impact of SRI on the US and Global equity markets and to resolve issues relating to the CCAPM that remain in the asset pricing literature. Prior studies that examine the financial impact of SRI produce mixed findings. Therefore, we begin by reviewing the relevant international literature and stress the importance of selecting appropriate SRI proxies in asset pricing tests. We enrich the literature by identifying areas that need to be carefully considered in constructing an SRI proxy and this will shed new light on the question of what measure of SRI should be used. In the first empirical chapter, we examine the financial impact of SRI on global equity returns, assessing our SRI proxies in the context of standard asset pricing models. We find that SRI has no significant impact on the global equity market. However, since SRI has become an increasingly popular practice only recently, our results may be hampered by data constraints. This motivates the next stage of the analysis wherein we employ the ICAPM framework. In Chapter 3, we formulate a two-factor empirical model under the ICAPM framework and construct SRI proxies by using the economic tracking portfolio method of Lamont (2001) to further examine whether SRI has financial impacts on the US equity market. Our findings in Chapter 3 are consistent with those of Chapter 2. The combined import of our findings in both chapters suggests that investors are free to implement SRI mandates without fear of breaching their fiduciary duties from inferior performance due to incorporating an SRI process. This will encourage the adoption of socially responsible investment strategies in practice. In the final chapter, we examine the empirical validity of the CCAPM that assumes investor's utility is non-separable across states of nature. To our knowledge, it is the first to evaluate the cross-sectional implications of the recursive utility function of Epstein and Zin (1991) by using innovations in consumption growth. Based on these analyses, we conclude that a variable capturing innovations in consumption growth is significantly priced in asset returns.

Download or read book Institutional Investors and Asset Pricing in Emerging Markets written by Ms.Elaine Karen Buckberg and published by International Monetary Fund. This book was released on 1996 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a new theory of asset pricing intended to address why other developing country equity markets responded so strongly to the Mexican devaluation, while the world’s major stock markets were unmoved. This phenomenon can be explained if investors follow a two-step portfolio allocation process, first determining what share of their portfolio to invest in developing countries, then allocating those funds across the emerging markets. For 12 of 13 markets studied, the one-factor CAPM is rejected in favor of a two-factor asset pricing model, including both a broad emerging markets portfolio and the global market portfolio.