Download or read book Conditional Asset Pricing Models in the Conventional and Downside Frameworks written by and published by . This book was released on 2009 with total page 414 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous studies have often found inconclusive evidence when explaining the beta risk-return relationship in the unconditional framework. This thesis analyses the unconditional and the conditional risk-return relationship on the Indonesian Stock Exchange (formerly Jakarta Stock Exchange) over the period 1996-2006. Both the conventional pricing framework and the downside pricing framework are employed to see which of the two may describe the behaviour of the Indonesian stock market better. As predicted, we found that the unconditional model fails to explain the risk-return cross-sectional relationship. In the conditional model based on market condition (up/down), this thesis finds a consistent and highly significant relationship between the CAPM beta and cross-sectional portfolios returns. In periods where excess market returns are negative, an inverse relationship between beta and portfolios returns exists. In periods where excess market returns are positive we find support for a positive risk-return relationship. Further, this thesis investigates whether the risk-return relation varies depending on the level of market volatility. Two market regimes based on the level of conditional volatility of market returns are specified - "low" and "high". The low and high volatility regimes are delineated with 3rd quartile, 90th percentile and median as the threshold parameters. In the low volatility regime the beta risk premium and downside beta risk premium are significantly different from zero. However, their signs are opposite to what is expected. In the models under the conventional framework skewness appears to be priced only in the up market and in the high volatility regime. However, when the market movement (up/down) and market volatility are incorporated as conditioning variables we found that the beta risk premium produces a significantly strong relationship with returns which is significantly positive in the up market and negative in the down market.

Download or read book Does Co Movement of Conditional Volatility Matter in Asset Pricing Further Evidence in the Downside and Conventional Pricing Frameworks written by Song Li and published by . This book was released on 2008 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we model country-specific equity market return and association between country-specific equity market volatility and that of the world market in the downside and conventional asset pricing frameworks. For this a Factor- ARCH type process is adopted where world market risk (beta) is estimated in the mean equation and exposure of country-specific market volatility to world market volatility (volatility beta) is estimated in the variance equation. Generally, the beta is estimated higher for developed markets than for emerging markets and the reverse is observed in volatility beta. Even though the two types of betas are positive and significant, a cross-sectional analysis reveals that volatility beta is not priced. We observe these results when the analysis is carried out from an international investor perspective. When we repeat the analysis in sub-periods delineated via breakpoints in the world market return series and with alternative specifications of the variance equation our findings remain largely unchanged.

Download or read book Capital Asset Pricing Models and Performance Measures in the Downside Risk Framework written by Chokri Mamoghli and published by . This book was released on 2008 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this article is twofold. First, we present the capital asset pricing models and the performance measures in the downside risk framework as an alternative to traditional CAPM and traditional performance measures respectively. Second, we develop two new performance measures in the downside risk framework. The empirical investigation based on Morgan Stanley Capital Indices MSCI database of emerging markets shows that the capital asset pricing models in the downside risk framework, especially the D-CAPM, describe better the valuation of assets. The results obtained also support the Sortino ratio, the upside potential ratio and Omega measure over Sharpe ratio. Similarly, the results support our two performance measures over Treynor index and the Jensen alpha.

Download or read book Asset Pricing Models and Financial Market Anomalies written by Doron Avramov and published by . This book was released on 2005 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives and implements a framework in which to test whether conditional asset pricing models, applied to single securities, can explain the size, value, turnover, and momentum effects in expected stock returns. In this framework individual stock betas vary with firm level size and book-to-market as well as with macroeconomic variables. The evidence shows that under the extensively studied constant beta framework, none of the models examined capture any of the size, value, turnover, and past return effects, even when returns are risk-adjusted by size, value, liquidity, and momentum factors. In contrast, when beta is allowed to vary, the size and book to market effects are often explained, but the explanatory power of turnover and past return remains robust. The past return or momentum effect is related to model mispricing that varies with macroeconomic variables, whereas turnover shows no business cycle patterns.

Download or read book Tests of Conditional Asset Pricing Models written by Jing Wang and published by . This book was released on 1998 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Tests of Conditional Asset Pricing Models written by Ching Wang and published by . This book was released on 2001 with total page 103 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Dynamic Test of Conditional Asset Pricing Models written by Daniele Bianchi and published by . This book was released on 2019 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: I use Bayesian tools to develop a dynamic testing methodology for conditional factor pricing models, in which time-varying betas, idiosyncratic risks, and factors risk premia are jointly estimated in a single step. Based on this framework, I test over fifty years of post-war monthly data some of the most common factor pricing models on size, book-to-market, and momentum deciles portfolios, both in the time series and in the cross section. The empirical results show that, a conditional specification of the recent five-factor model of Fama and French (2015) outperforms a set of theory-based competing linear pricing models along several dimensions.

Download or read book An Examination of Conditional Asset Pricing in UK Stock Returns written by Jonathan Fletcher and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine the empirical performance of various specifications of the capital asset pricing model (CAPM) in UK stock returns, using the stochastic discount framework. When the proxy for the market portfolio includes a proxy for labor income growth in addition to the stock market index, the performance of the CAPM improves. The improvement in performance shows in the magnitude and significance of the pricing errors and in the reduced impact of asset characteristics and other factors in the pricing of assets. There is further improvement when I use conditional versions of the models.

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 2006 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Estimation and evaluation of conditional asset pricing models written by Stefan Nagel and published by . This book was released on 2010 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find that several recently proposed consumption-based models of stock returns, when evaluated using an optimal set of managed portfolios and the associated model-implied conditional moment restrictions, fail to capture key features of risk premiums in equity markets. To arrive at these conclusions, we construct an optimal GMM estimator for models in which the stochastic discount factor (SDF) is a conditionally affine function of a set of priced risk factors. Further, for the (often relevant) case where a researcher is proposing a generalized SDF relative to some null model, we show that there is an optimal choice of managed portfolios to use in testing the null against the proposed alternative.

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 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 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 Explaining the Poor Performance of Consumption based Asset Pricing Models written by John Y. Campbell and published by . This book was released on 1999 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: The poor performance of consumption-based asset pricing models relative to traditional portfolio-based asset pricing models is one of the great disappointments of the empirical asset pricing literature. We show that the external habit-formation model economy of Campbell and Cochrane (1999) can explain this puzzle. Though artificial data from that economy conform to a consumption-based model by construction, the CAPM and its extensions are much better approximate models than is the standard power utility specification of the consumption-based model. Conditioning information is the central reason for this result. The model economy has one shock, so when returns are measured at sufficiently high frequency the consumption-based model and the CAPM are equivalent and perfect conditional asset pricing models. However, the model economy also produces time-varying expected returns, tracked by the dividend-price ratio. Portfolio-based models capture some of this variation in state variables, which a state-independent function of consumption cannot capture, and so portfolio-based models are better approximate unconditional asset pricing models

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.

Download or read book Financial Asset Pricing Theory written by Claus Munk and published by Oxford University Press, USA. This book was released on 2013-04-18 with total page 598 pages. Available in PDF, EPUB and Kindle. Book excerpt: The book presents models for the pricing of financial assets such as stocks, bonds, and options. The models are formulated and analyzed using concepts and techniques from mathematics and probability theory. It presents important classic models and some recent 'state-of-the-art' models that outperform the classics.

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.