Download or read book Asset Pricing Models with Conditional Betas and Alphas written by Wayne E. Ferson and published by . This book was released on 2010 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the estimation of asset pricing model regressions with conditional alphas and betas, focusing on the joint effects of data snooping and spurious regression. We find that the regressions are reasonably well specified for conditional betas, even in settings where simple predictive regressions are severely biased. However, there are biases in estimates of the conditional alphas. When time-varying alphas are suppressed and only time-varying betas are considered, the betas become baised. Previous studies overstate the significance of time-varying alphas.
Download or read book Asset Pricing Models with Conditional Betas and Alphas written by Wayne E. Ferson and published by . This book was released on 2006 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the estimation of asset pricing model regressions with conditional alphas and betas, focusing on the joint effects of data snooping and spurious regression. We find that the regressions are reasonably well specified for conditional betas, even in settings where simple predictive regressions are severely biased. However, there are biases in estimates of the conditional alphas. When time-varying alphas are suppressed and only time-varying betas are considered, the betas become baised. Previous studies overstate the significance of time-varying alphas.
Download or read book Testing Asset Pricing Models with Unconditional and Conditional Alphas and Betas written by Niels Veldhuis and published by . This book was released on 2000 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Testing Capital Asset Pricing Models with Unconditional and Conditional Alphas and Betas written by Irene Shuen Wei Se and published by . This book was released on 2000 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Conditional Asset Pricing Predicting Time Varying Beta Factors with Group Method of Data Handling Methods written by Sebastian Schneider and published by . This book was released on 2005 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Allowing for time-varying risk premia yields sophisticated asset pricing models, but the search for adequate model specifications is more challenging. We introduce, to our knowledge, previously in conditional asset pricing not used Group Method of Data Handling (GMDH) that rests on sorting out requiring statsitical models for complex problems of unknown structure but does not require a model to predict conditional variation in betas. We find that lagged instruments used to proxy for expected returns in conditional asset pricing provide a challenge not only for the unconditional CAPM but also the Fama-French-model. Thereby non-linear GMDH-algorithms challenge traditional models of conditional asset pricing as we find a highly non-linear influence of lagged instruments on both conditional alphas and betas. Therefore, predetermining a structure for functional relationships between conditional alphas as well as betas and lagged instruments may lead to a significant misspecification of asset pricing models.
Download or read book Estimation of Conditional Asset Pricing Models with Integrated Variables in the Beta Specification written by Antonios Antypas and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We introduce a methodology which deals with possibly integrated variables in the specification of the betas of conditional asset pricing models. In such a case, any model which is directly derived by a polynomial approximation of the functional form of the conditional beta will inherit a nonstationary right hand side. Our approach uses the cointegrating relationships between the integrated variables in order to maintain the stationarity of the right hand side of the estimated model, thus, avoiding the issues that arise in the case of an unbalanced regression. We present an example where our methodology is applied to the returns of funds-of-funds which are based on the Morningstar mutual fund ranking system. The results provide evidence that the residuals of possible cointegrating relationships between integrated variables in the specification of the conditional betas may reveal significant information concerning the dynamics of the betas.
Download or read book The Conditional Capital Asset Pricing Model Revisited written by Fabian Hollstein and published by . This book was released on 2019 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: When using high-frequency data, the conditional CAPM can explain asset-pricing anomalies. Using conditional betas based on daily data, the model works reasonably well for a recent sample period. However, it fails to explain the size anomaly as well as 3 out of 6 of the anomaly component excess returns. Using high-frequency betas, the conditional CAPM is able to explain the size, value, and momentum anomalies. We further show that high-frequency betas provide more accurate predictions of future betas than those based on daily data. This result holds for both the time-series and the cross-sectional dimensions.
Download or read book The Capital Asset Pricing Model written by and published by Bookboon. This book was released on with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 Long written by Mr. Lorenzo Giorgianni and published by International Monetary Fund. This book was released on 1997-01-01 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several authors have recently investigated the predictability of exchange rates by fitting a sequence of long-horizon error-correction regressions. By considering the implied vector error-correction model, we show that little is to be gained from estimating such regressions for horizons greater than one time period. We also show that in small to medium samples the long-horizon procedure gives rise to spurious evidence of predictive power. A simulation study demonstrates that even when using this technique on two independent series, estimates, diagnostic statistics and graphical evidence incorrectly suggest a high degree of predictability of the dependent variable.
Download or read book A New Model of Capital Asset Prices written by James W. Kolari and published by Springer Nature. This book was released on 2021-03-01 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.
Download or read book Empirical Asset Pricing written by Wayne Ferson and published by MIT Press. This book was released on 2019-03-12 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 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 Asset Pricing Anomalies and Time Varying Betas written by Devraj Basu and published by . This book was released on 2019 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we develop a new measure of specification error, and thus derive new statistical tests, for conditional factor models, i.e. models in which the factor loadings (and hence risk premia) are allowed to be time-varying. Our test exploits the close links between the stochastic discount factor framework and mean-variance efficiency. We show that a given set of factors is a true conditional asset pricing model if and only if the efficient frontiers spanned by the traded assets and the factor-mimicking portfolios, respectively, intersect. In fact, we show that our test is proportional to the difference in squared Sharpe ratios of these two frontiers.We draw three main conclusions from our empirical findings. First, optimal scaling clearly improves the performance of asset pricing models, to the point where several of the scaled models are capable of explaining asset pricing anomalies. However, even the optimally scaled models fall short of being true conditional asset pricing models in that they fail to price actively managed portfolios correctly. Second, there is significant time-variation in factor loadings and hence risk premia, which plays a significant role in asset pricing. Moreover, the optimal factor loadings display a high degree of non-linearity in the conditioning variables, suggesting that the linear scaling prevalent in the literature is sub-optimal and does not capture the inter-temporal pattern of risk premia. Third, skewness and kurtosis do matter in the conditional setting, while adding little to unconditional performance.
Download or read book Does It Pay to Bet Against Beta On the Conditional Performance of the Beta Anomaly written by Scott Cederburg and published by . This book was released on 2015 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior studies find that a strategy that buys high-beta stocks and sells low-beta stocks has a significantly negative unconditional Capital Asset Pricing Model (CAPM) alpha, such that it appears to pay to "bet against beta." We show, however, that the conditional beta for the high-minus-low beta portfolio covaries negatively with the equity premium and positively with market volatility. As a result, the unconditional alpha is a downward biased estimate of the true alpha. We model the conditional market risk for beta-sorted portfolios using instrumental variables methods and find that the conditional CAPM resolves the beta anomaly.
Download or read book Conditional Asset Pricing and Momentum written by Thanh Huynh and published by . This book was released on 2014 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Winner stocks have higher risk exposure to Fama and French's (1993) three factors (FF3F) than loser stocks during good economic times, and therefore should earn higher expected returns. Employing the conditional FF3F model to risk adjust returns on winner and loser stocks can reduce the average momentum alpha by 50 % compared to the conventional portfolio-level estimate. We point out a bias in the existing methodology of component-level risk adjustment. After correcting for this bias, even though conditional asset pricing models still cannot completely explain momentum returns, the reduction in alpha remains strong.
Download or read book Testing Conditional Asset Pricing Models Using a Markov Chain Monte Carlo Approach written by Manuel Ammann and published by . This book was released on 2014 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new approach for the estimation of conditional asset pricing models based on a Markov Chain Monte Carlo (MCMC) approach. In contrast to existing approaches, it is truly conditional because the assumption that time variation in betas is driven by a set of conditioning variables is not necessary. Moreover, the approach has exact finite sample properties and accounts for errors-in-variables in a one-step estimation procedure. Using Samp;P 500 panel data, we analyze the empirical performance of the CAPM and the Fama and French (1993) three-factor model. We find that time-variation of betas in the CAPM and the time variation of the coefficients for the size factor (SMB) and the distress factor (HML) in the three-factor model improve the empirical performance by a similar amount. Therefore, our findings are consistent with time variation of firm-specific exposure to market risk, systematic credit risk and systematic size effects. However, a Bayesian model comparison trading off goodness of fit and model complexity indicates that the conditional CAPM performs best, followed by the conditional three-factor model, the unconditional CAPM, and the unconditional three-factor model.
