Download or read book Asset prices and persistence in fundamentals written by Andrea E. Beltratti and published by . This book was released on 1991 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Asset Prices in a Time Series Model with Perpetually Disparately Informed Competitive Traders written by Kenneth Kasa and published by . This book was released on 2006 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a dynamic asset pricing model with persistent heterogeneous beliefs. The model features competitive traders who receive idiosyncratic signals about an underlying fundamentals process. We adapt Futia's (1981) frequency domain methods to derive conditions on the fundamentals that guarantee noninvertibility of the mapping between observed market data and the underlying shocks to agents' information sets. When these conditions are satisfied, agents must 'forecast the forecasts of others'. The paper provides an explicit analytical characterization of the resulting higher-order belief dynamics. These additional dynamics can explain apparent violations of variance bounds and rejections of cross-equation restrictions.
Download or read book Essays on Behavioral Finance and Asset Pricing written by Chen Wang and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of four essays exploring how people form beliefs and make decisions in the financial markets and their implications for asset prices. Two common threads run through this dissertation: the persistence of key state variables and the less-than-fully-rational approach to economic decision-making.Chapter 1 studies how professional forecasts of interest rates across maturities respond to new information. I document that forecasts for short-term rates underreact to new information while forecasts for long-term rates overreact. I propose a new explanation based on "autocorrelation averaging,'' whereby, to limited cognitive processing capacity, forecasters' estimate of the autocorrelation of a given process is biased toward the average autocorrelation of all the processes they observe. Consistent with this view, I show that forecasters over-estimate the autocorrelation of the less persistent term premium component of interest rates and under-estimate the autocorrelation of the more persistent short rate component. A calibrated model quantitatively matches the documented pattern of misreaction. Finally, I explore the pattern's implication for asset prices by showing that an overreaction-motivated predictor, the realized forecast error for the 10-year Treasury yield, robustly predicts excess bond returns.Chapter 2, joint with Ye Li, generalizes an exponential-affine asset pricing model to show that the prices of dividend strips reveal the underlying state variables, and thus, strongly predict future market return and dividend growth. We derive and empirically show that expected dividend growth is non-persistent, under which condition the ratio of market price to short-term dividend price, "duration,'' reveals only expected returns information. Duration predicts annual market return with an out-of-sample of R2 19%, subsuming the price-dividend ratio's predictive power. After controlling for duration, the price-dividend ratio predicts dividend growth with an out-of-sample R2 of 30%. Our results hold outside the U.S. We find the expected return is countercyclical and responds forcefully to monetary policy shocks. As implied by the ICAPM, shocks to duration, the expected-return proxy, are priced in the cross-section.Chapter 3, joint with Cameron Peng, shows that mutual funds contribute to cross-sectional momentum and excess volatility through positive feedback trading. Stocks held by positive feedback funds exhibit much stronger momentum, almost doubling the returns from a simple momentum strategy. This ``enhanced'' momentum is robust to alternative positive feedback trading measures and cannot be explained by other stock characteristics, ex-post firm fundamentals, fund flows, or herding. Moreover, enhanced momentum is almost entirely reversed after one quarter, suggesting initial overshooting and subsequent reversal. We argue that the most likely explanation is the price pressure from positive feedback trading. Finally, we relate positive feedback trading to mutual fund performance and show that it can positively predict a fund's return from active management.Chapter 4, joint with Ye Li, presents an intrinsic form of uncertainty in asset management, which we call ``delegation uncertainty.'' Investors hire managers for their superior models of asset markets, but delegation outcome is uncertain precisely because the managers' model is unknown to investors. We model investors' delegation decisions as a trade-off between asset return uncertainty and delegation uncertainty. Our theory explains several puzzles on fund performances. It also delivers asset pricing implications supported by our empirical analysis: (1) because investors partially delegate and hedge against delegation uncertainty, CAPM alpha arises; (2) the cross-section dispersion of alpha increases in uncertainty; (3) managers bet on alpha, engaging in factor timing, but factors' alpha is immune to the rise of their arbitrage capital -- when investors delegate more, delegation hedging becomes stronger. Finally, we offer a novel approach to extract model uncertainty from asset returns, delegation, and survey expectations.
Download or read book Risk Uncertainty and Asset Prices written by Geert Bekaert and published by . This book was released on 2006 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: We identify the relative importance of changes in the conditional variance of fundamentals (which we call "uncertainty") and changes in risk aversion ("risk" for short) in the determination of the term structure, equity prices and risk premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model. The model matches the dynamics of dividend and consumption growth, including their volatility dynamics and many salient asset market phenomena. While the variation in dividend yields and the equity risk premium is primarily driven by risk, uncertainty plays a large role in the term structure and is the driver of counter-cyclical volatility of asset returns.
Download or read book Handbook of Financial Markets Dynamics and Evolution written by Thorsten Hens and published by Elsevier. This book was released on 2009-06-12 with total page 607 pages. Available in PDF, EPUB and Kindle. Book excerpt: The models of portfolio selection and asset price dynamics in this volume seek to explain the market dynamics of asset prices. Presenting a range of analytical, empirical, and numerical techniques as well as several different modeling approaches, the authors depict the state of debate on the market selection hypothesis. By explicitly assuming the heterogeneity of investors, they present models that are descriptive and normative as well, making the volume useful for both finance theorists and financial practitioners. Explains the market dynamics of asset prices, offering insights about asset management approaches Assumes a heterogeneity of investors that yields descriptive and normative models of portfolio selections and asset pricing dynamics
Download or read book Asset Pricing written by John H. Cochrane and published by Princeton University Press. This book was released on 2009-04-11 with total page 560 pages. Available in PDF, EPUB and Kindle. Book excerpt: Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea--price equals expected discounted payoff--that captures the macro-economic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model--consumption based, CAPM, multifactor, term structure, and option pricing--is derived as a different specification of the discounted factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted payoff. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook, this book condenses and advances recent scholarship in financial economics.
Download or read book Asset Prices and Monetary Policy written by John Y. Campbell and published by University of Chicago Press. This book was released on 2008-11-15 with total page 444 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economic growth, low inflation, and financial stability are among the most important goals of policy makers, and central banks such as the Federal Reserve are key institutions for achieving these goals. In Asset Prices and Monetary Policy, leading scholars and practitioners probe the interaction of central banks, asset markets, and the general economy to forge a new understanding of the challenges facing policy makers as they manage an increasingly complex economic system. The contributors examine how central bankers determine their policy prescriptions with reference to the fluctuating housing market, the balance of debt and credit, changing beliefs of investors, the level of commodity prices, and other factors. At a time when the public has never been more involved in stocks, retirement funds, and real estate investment, this insightful book will be useful to all those concerned with the current state of the economy.
Download or read book Monetary Policy Asset Prices and the Wealth Channel written by Jonathan Horlacher and published by GRIN Verlag. This book was released on 2011-09 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Examines whether monetary policy in the Untied Kingdom during the last 15 years should have reacted more strongly to the asset price misalignment in financial assets and real estate assets, and if it should have reacted with different magnitude to the two asset classes. A counterfactual analysis using a dynamic structural general equilibrium (DSGE) model is conducted to test several scenarios."--Abstract.
Download or read book Risk Uncertainty and Asset Prices written by Geert Bekaert and published by . This book was released on 2008 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We identify the relative importance of changes in the conditional variance of fundamentals (which we call uncertainty) and changes in risk aversion in the determination of the term structure, equity prices and risk premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model. The model matches the dynamics of dividend and consumption growth, including their volatility dynamics and many salient asset market phenomena. While the variation in price-dividend ratios and the equity risk premium is primarily driven by risk aversion, uncertainty plays a large role in the term structure and is the driver of counter-cyclical volatility of asset returns.
Download or read book Asset Price Bubbles written by Ms.Anna Scherbina and published by International Monetary Fund. This book was released on 2013-02-21 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Why do asset price bubbles continue to appear in various markets? This paper provides an overview of recent literature on bubbles, with significant attention given to behavioral models and rational models with frictions. Unlike the standard rational models, the new literature is able to model the common characteristics of historical bubble episodes and offer insights for how bubbles are initiated and sustained, the reasons they burst, and why arbitrage forces do not routinely step in to squash them. The latest U.S. real estate bubble is described in the context of this literature.
Download or read book Dynamic Trading and Asset Prices written by Giovanni Cespa and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the dynamics of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model. We show that prices are farther away from (closer to) fundamentals compared with average expectations if and only if traders over- (under-) rely on public information with respect to optimal statistical weights. Both phenomena, in turn, occur whenever traders speculate on short-run price movements. For a given, positive level of residual payoff uncertainty, over-reliance on public information obtains if noise trade displays low persistence. This defines a "Keynesian" region; the complementary region is "Hayekian" in that prices are systematically closer to fundamentals than average expectations. The standard case of no residual uncertainty and noise trading following a random walk is on the frontier of the two regions and identifies the set of deep parameters for which traders abide by Keynes' dictum of concentrating on an asset "long term prospects and those only." The analysis explains accommodation and trend chasing strategies as well as momentum and reversal.
Download or read book Asset Prices and the Fundamentals written by Roger Craine and published by . This book was released on 1993 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The New Palgrave Dictionary of Economics written by and published by Springer. This book was released on 2016-05-18 with total page 7493 pages. Available in PDF, EPUB and Kindle. Book excerpt: The award-winning The New Palgrave Dictionary of Economics, 2nd edition is now available as a dynamic online resource. Consisting of over 1,900 articles written by leading figures in the field including Nobel prize winners, this is the definitive scholarly reference work for a new generation of economists. Regularly updated! This product is a subscription based product.
Download or read book Rethinking Expectations written by Roman Frydman and published by Princeton University Press. This book was released on 2013-01-23 with total page 441 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book originated from a 2010 conference marking the fortieth anniversary of the publication of the landmark "Phelps volume," Microeconomic Foundations of Employment and Inflation Theory, a book that is often credited with pioneering the currently dominant approach to macroeconomic analysis. However, in their provocative introductory essay, Roman Frydman and Edmund Phelps argue that the vast majority of macroeconomic and finance models developed over the last four decades derailed, rather than built on, the Phelps volume's "microfoundations" approach. Whereas the contributors to the 1970 volume recognized the fundamental importance of according market participants' expectations an autonomous role, contemporary models rely on the rational expectations hypothesis (REH), which rules out such a role by design. The financial crisis that began in 2007, preceded by a spectacular boom and bust in asset prices that REH models implied could never happen, has spurred a quest for fresh approaches to macroeconomic analysis. While the alternatives to REH presented in Rethinking Expectations differ from the approach taken in the original Phelps volume, they are notable for returning to its major theme: understanding aggregate outcomes requires according expectations an autonomous role. In the introductory essay, Frydman and Phelps interpret the various efforts to reconstruct the field--some of which promise to chart its direction for decades to come. The contributors include Philippe Aghion, Sheila Dow, George W. Evans, Roger E. A. Farmer, Roman Frydman, Michael D. Goldberg, Roger Guesnerie, Seppo Honkapohja, Katarina Juselius, Enisse Kharroubi, Blake LeBaron, Edmund S. Phelps, John B. Taylor, Michael Woodford, and Gylfi Zoega.
Download or read book NBER Macroeconomics Annual 2007 written by Daron Acemoglu and published by . This book was released on 2008-03 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The NBER Macroeconomics Annual provides a forum for important debates in contemporary macroeconomics and major developments in the theory of macroeconomic analysis and policy that include leading economists from a variety of fields. The papers and accompanying discussions in NBER Macroeconomics Annual 2007 address exchange-rate models; implications of credit market frictions; cyclical budgetary policy and economic growth; the impacts of shocks to government spending on consumption, real wages, and employment; dynamic macroeconomic models; and the role of cyclical entry of new firms and products on the nature of business-cycle fluctuations and on the effects of monetary policy.
Download or read book NBER Macroeconomics Annual 1992 written by Olivier Blanchard and published by MIT Press. This book was released on 1992 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is the seventh in a series of annuals from the National Bureau of Economic Research that are designed to stimulate research on problems in applied economics, to bring frontier theoretical developments to a wider audience, and to accelerate the interaction between analytical and empirical research in macroeconomics. Contents What Shall We Do Today? Goals and Signposts in the Operation of Monetary Policy, Ben S. Bernanke and Frederic S. Mishkin - A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore, Alwyn Young - International Trade and the Wage Structure, Steven J. Davis - Imperfect Information and Macroeconomic Analysis, Joseph E. Stiglitz and Bruce Greenwald - Asset Pricing Lessons for Macroeconomics, Lars P. Hansen and John H. Cochrane - Postmortem on the Debt Crisis, Daniel Cohen
Download or read book Handbook of Computational Economics written by Leigh Tesfatsion and published by Elsevier. This book was released on 2006-05-15 with total page 905 pages. Available in PDF, EPUB and Kindle. Book excerpt: The explosive growth in computational power over the past several decades offers new tools and opportunities for economists. This handbook volume surveys recent research on Agent-based Computational Economics (ACE), the computational study of economic processes modeled as dynamic systems of interacting agents. Empirical referents for "agents" in ACE models can range from individuals or social groups with learning capabilities to physical world features with no cognitive function. Topics covered include: learning; empirical validation; network economics; social dynamics; financial markets; innovation and technological change; organizations; market design; automated markets and trading agents; political economy; social-ecological systems; computational laboratory development; and general methodological issues. *Every volume contains contributions from leading researchers *Each Handbook presents an accurate, self-contained survey of a particular topic *The series provides comprehensive and accessible surveys
