Download or read book Essays in Economic Growth and Asset Pricing written by Marcelo Mello and published by . This book was released on 2002 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Asset Pricing written by Bosung Jang and published by . This book was released on 2017 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies how asset prices are related to various macroeconomic and financial factors. In the first chapter, I examine the influence of external financing costs on growth and asset prices. Using U.S. high-tech firm data and the aggregate financing cost measure of Eisfeldt and Muir (2016), I find that an increase in financing cost can have negative effects on R&D by reducing equity finance. This result suggests that financing cost can have substantial impacts on long-run productivity through the R&D channel. Motivated by this idea, I construct a general equilibrium model where financing costs affect innovation activities and future productivity. My model endogenously generates long-run risk and matches key features of macroeconomic and asset price data. The model produces a sizable equity premium, doing a good job of matching macro moments in the data. Furthermore, a large risk premium of R&D-intensive stocks is justified in the model as in the data. In addition, as a higher financing cost forecasts lower productivity growth in the model, this prediction is supported by empirical evidence. In the second chapter, I investigate whether heterogeneity between domestic and foreign households can help explain the cross-section of stock returns. For this analysis, I apply Yogo’s (2006) durable consumption model to a two-country setting using Korean stock market data. In Korea, U.S. investors have been a dominant foreign investor group, given that the total share of foreigners is considerably large. By incorporating the stochastic discount factor of the U.S. into the model, I find that it plays a significant role in pricing assets. In particular, our model is successful in accounting for the expected excess return of relatively high book-to-market equity groups, producing lower pricing errors than the Fama-French 3 factor model. In the third chapter, I study the effects of debt maturity choice on stock returns and financial structure. I construct a model where firms can issue both short-term and long-term bonds, subject to collateral constraints. I also assume that, when they run financial deficits, firms use equity finance paying issuance costs. The model performs well in matching empirical facts about stock returns and the financial structure of firms. In addition, the model provides an interesting implication that firms substitute between leverage and maturity. In the literature, theoretical explanations for the substitution relationship have been mainly based on conflicts between stakeholders. Without hinging on the contract-theoretic approach, my model replicates the theoretical prediction.

Download or read book Economic Uncertainty Instabilities And Asset Bubbles Selected Essays written by Anastasios G Malliaris and published by World Scientific. This book was released on 2005-10-03 with total page 373 pages. Available in PDF, EPUB and Kindle. Book excerpt: The compendium of papers in this volume focuses on aspects of economic uncertainty, financial instabilities and asset bubbles.Economic uncertainty is modeled in continuous time using the mathematical techniques of stochastic calculus. A detailed treatment of important topics is provided, including the existence and uniqueness of asymptotic economic growth, the modeling of inflation and interest rates, the decomposition of inflation and its volatility, and the extension of the quantity theory of money to allow for randomness.The reader is also introduced to the methods of chaotic dynamics, and this methodology is applied to asset pricing, the European equity markets, and the multi-fractality in foreign currency markets.Since the techniques of stochastic calculus and chaotic dynamics do not readily accommodate the presence of stochastic bubbles, several papers discuss in depth the presence of financial bubbles in asset prices, and econometric work is performed to link such bubbles to monetary policy.Finally, since bubbles often burst rather than deflate slowly, the last section of the book studies the crash of October 1987 as well as other crashes of national equity markets due to the Persian gulf crisis.

Download or read book Three Essays in Asset Pricing written by Alan Picard and published by . This book was released on 2015 with total page 165 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract This dissertation consists of three essays. My first paper re-examines the link between idiosyncratic risk and expected returns for a large sample of firms in both developed and emerging markets. Recent studies using Fama-French three factor models have shown a negative relationship between idiosyncratic volatility and expected returns for developed markets. This relationship has not been studied to date for emerging markets. This study relates the current-month’s idiosyncratic volatility to the subsequent month’s returns for a sample of both developed and emerging markets expanding benchmark factors by including both a momentum and a systematic liquidity risk component. My second essay contributes to the important literature on the topic of the small capitalization stocks historical outperformance over large capitalization stocks by investigating the hypothesis that the small firm premium is related to macroeconomic and financial variables and that relationship is driven by the economic cycle in the United States and Canada. More specifically, this study employs recent advances in nonlinear time series models to explore the relationship between the small firm premium, and financial and macroeconomic variables in the Canadian and U.S. economies. My third paper re-examines the findings of a recent research paper that suggested that market wide liquidity may act as a leading indicator to the economic cycle. Using several liquidity measures and various macroeconomic variables to proxy for the economic conditions, the paper presents evidence that stock market liquidity could forecast business cycles: A major decrease in the overall level of market liquidity could indicate weak economic growth in the subsequent months. However, the drawback in the analysis is that the relationship is investigated in a linear approach even though it has been proven that most macroeconomic variables follow non-linear dynamics. Employing similar liquidity measures and macroeconomic proxies, and two popular econometrics models that account for non-linear behavior, this study hence re-investigates the relationship between stock market liquidity and business cycles.

Download or read book Selected Essays in Empirical Asset Pricing written by Christian Funke and published by Springer Science & Business Media. This book was released on 2008-09-15 with total page 123 pages. Available in PDF, EPUB and Kindle. Book excerpt: Christian Funke aims at developing a better understanding of a central asset pricing issue: the stock price discovery process in capital markets. Using U.S. capital market data, he investigates the importance of mergers and acquisitions (M&A) for stock prices and examines economic links between customer and supplier firms. The empirical investigations document return predictability and show that capital markets are not perfectly efficient.

Download or read book Essays in Asset Pricing and Applied Micro economics written by Mark William Clements and published by . This book was released on 2015 with total page 532 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter, Christian Goulding and I present a model of asset prices with recursive preferences and the simple consumption growth dynamics of Mehra and Prescott (1985) but relax the assumption that preference parameters are constant over time. We show that rare, temporary, and plausible fluctuations in the elasticity of inter-temporal substitution (EIS) and risk aversion (RA) can quantitatively explain numerous regularities in U.S. asset prices including: the equity premium and risk-free rate puzzles, excess return and consumption growth predictability, a counter-cyclical risk premium and an upward-sloping real yield curve. A novel implication is that time-varying EIS is more important than time-varying RA for explaining many of these regularities, suggesting a new source of risk in investors' ability to plan their consumption over long horizons. In addition, our model can accommodate a behavioral interpretation of psychological factors (e.g. fear) that drive fluctuations in asset prices beyond traditional risk factors.

Download or read book Essays in asset pricing and information economics written by Vassilios Dimitrakas 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 Essays in Asset Pricing Anomalies written by Serena Frazzoni and published by . This book was released on 2006 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Economics written by Winston Wei Dou and published by . This book was released on 2017 with total page 383 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays that theoretically and empirically investigate the asset pricing and macroeconomic implications of uncertainty shocks, propose new measures for model robustness, explain the joint dynamics on equity excess returns and real exchange rates. In the first chapter, I show that the effect of uncertainty shocks on asset prices and macroeconomic dynamics depends on the degree of risk sharing in the economy and the origin of uncertainty. I develop a general equilibrium model with imperfect risk sharing and two sources of uncertainty shocks: (i) cash-flow uncertainty shocks, which affect the idiosyncratic volatility of firms' productivity, and (ii) growth uncertainty shocks, which affect the idiosyncratic variability of firms' investment opportunities. My model deviates from the neoclassical setting in one respect: firms' investment policies are set by the experts who are subject to a moral hazard problem and thus must maintain an non-diversified ownership stake in the firm. As a result, risk sharing between experts and other investors is imperfect. Limited risk sharing distorts equilibrium investment choices, firm valuation, and prices of risk in equilibrium relative to the frictionless benchmark. In the calibrated model, the risk premium on growth uncertainty shocks is negative under poor risk sharing conditions and positive otherwise. Moreover, the cross-sectional spread in valuations between value and growth stocks loads positively on the growth uncertainty shocks under poor risk sharing conditions and negatively otherwise. Empirical tests support these predictions of the model. The second chapter is based on the joint work Chen, Dou, and Kogan (2015), in which we propose a new quantitative measure of model fragility, based on the tendency of a model to over-fit the data in sample with poor out-of-sample performance. We formally show that structural economic models are fragile when the cross-equation restrictions they impose on the baseline statistical model appear excessively informative about combinations of model parameters that are otherwise difficult to estimate. We develop an analytically tractable asymptotic approximation to our fragility measure which we use to identify the problematic parameter combinations. Using these asymptotic results, we diagnose fragility in asset pricing models with rare disasters and long-run consumption risk. The third chapter is based on the joint work Dou and Verdelhan (2015), which presents a two-good, two-country real model that replicates the basic stylized facts on equity excess returns and real interest rates. In the model, markets are incomplete. In each country, workers cannot participate in financial markets whereas investors trade domestic and foreign stocks, as well as an international bond. The investors' asset positions are subject to a borrowing constraint, along with a short-selling constraint on equity. Foreign and domestic agents differ in their elasticity of inter temporal substitution and in their risk-aversion. A time-varying probability of a global disaster implies time-varying risk premia in asset markets, and therefore large and time-varying expected valuation effects on international asset positions. The model highlights the role of market incompleteness and heterogeneity across countries in accounting for the volatility of equity and debt international capital flows.

Download or read book Essays on Economic Fundamentals in Asset Pricing written by Jie Bai and published by . This book was released on 2008 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Empirical Asset Pricing written by Johan Parmler and published by . This book was released on 2005 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Asset Pricing in Continuous Time written by John Hatgioannides and published by . This book was released on 1996 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Consumption based Asset Pricing Models written by Hugo Alejandro Garduño Arredondo and published by . This book was released on 2008 with total page 324 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Money Asset Prices and Liquidity Premia written by Seungduck Lee and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation analyzes the determinants of asset prices and the effect of monetary policy on not only asset prices, but also on other macroeconomic outcomes such as asset market trade volume and welfare in an environment with search frictions. The analysis in such an environment helps to examine an important component of determining asset prices: liquidity, which is assets' ability to facilitate transactions. Hence, the dissertation particularly examines the effect of monetary policy on asset prices that the traditional asset pricing models without search frictions may be missing, and also explain some phenomena which are often considered abnormal in macroeconomics and international macroeconomics such as negative nominal yields and the Uncovered Interest Parity puzzle. The dissertation consists of three stand-alone papers and I provide their abstracts as follows. The first chapter is "Money, Asset Prices and the Liquidity Premium". This paper examines the effect of monetary policy on the market value of the liquidity services that financial assets provide, known as the liquidity premium. Money supply and nominal interest rates have positive effects on the liquidity premium, but asset supply has a negative effect. This implies that liquid financial assets aresubstantive substitutes for money, and that the opportunity cost of holding money plays a key role in explaining variation in the liquidity premium and thus in asset prices. The higher cost of holding money due to higher money growth rates leads to a higher liquidity premium. My empirical analysis with U.S. Treasury data over the period from 1946 and 2008 confirms the theoretical predictions. The theory also suggests that the liquidity properties of assets can cause negative nominal yields when the cost of holding money is low and liquid assets are scarce. I present empirical findings in the U.S. and Switzerland to support this prediction. The second chapter is a joint paper with Kuk Mo Jung, titled "A Liquidity-Based Resolution of the Uncovered Interest Parity Puzzle". In this paper, a new monetary theory is set out to resolve the "Uncovered Interest Parity (UIP)" Puzzle. It explores the possibility that liquidity properties of money and nominal bonds can account for the puzzle. A key concept in our model is that nominal bondscarry liquidity premia due to their medium of exchange role as either collateral or a means of payment. In this framework, no-arbitrage ensures a positive comovement of real return on money and nominal bonds. Thus, when inflation in one country becomes relatively lower, i.e., real return on this currency is relatively higher, its nominal bonds should also yield higher real return. We show that their nominal returns can also become higher under the economic environment where collateral pledgeability and/or liquidity of nominal bonds and/or collateralized credit based transactions are relatively bigger. Since a currency with lower inflation is expected to appreciate, the high interest currency does indeed appreciate in this case, i.e., the UIP puzzle is no longer an anomaly in our model. Our liquidity based theory can in fact help understanding many empirical observations that risk based explanations find difficult to reconcile with. The third chapter is joint work with Athanasios Geromichalos, Jiwon Lee, and Keita Oikawa, titled "Over-the-Counter Trade and the Value of Assets as Collateral" and was published in Economic Theory in 2016. We study asset pricing within a general equilibrium model where unsecured credit is ruled out, and a real asset helps agents carry out mutually benecial transactions by serving as collateral. A unique feature of our model is that the agent who provides the loan might have a low valuation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral because she can access a secondary asset market where she can sell the asset. Following a recent strand of the finance literature, based on the influential work of Duffie, Garleanu, and Pedersen (2005), we model this secondary asset market as an over-the-counter market characterized by search and bargaining frictions. We study how the asset's property to serve as collateral affects its equilibrium price, and how the asset price and the economy's welfare are affected by the degree of liquidity in the secondary asset market.

Download or read book Macroeconomics Finance and Money written by Giuseppe Fontana and published by Springer. This book was released on 2010-03-11 with total page 363 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume focuses on current issues of debate in the area of modern macroeconomics and money, written from (a broadly interpreted) post Keynesian perspective. The papers connect with Philip Arestis' contributions to macroeconomics and money, and pay tribute to his distinguished career.

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 Essays in Asset Pricing and Machine Learning written by Jason Yue Zhu and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis we study two applications of machine learning to estimate models that explains asset prices by harnessing the vast quantity of asset and economic information while also capturing complex structure among sources of risk. First we show how to build a cross-section of asset returns, that is, a small set of basis or test assets that capture complex information contained in a given set of characteristics and span the Stochastic Discount Factor (SDF). We use decision trees to generalize the concept of conventional sorting and introduce a new approach to robustly recover the SDF, which endogenously yields optimal portfolio splits. These low-dimensional investment strategies are well diversified, easily interpretable, and reflect many characteristics at the same time. Empirically, we show that traditional cross-sections of portfolios and their combinations, especially deciles and long-short anomaly factors, present too low a hurdle for model evaluation and serve as the wrong building blocks for the SDF. Constructed from the same pricing signals, our cross-sections have significantly higher (up to a factor of three) out-of-sample Sharpe ratios and pricing errors relative to the leading reduced-form asset pricing models. In the second part of the thesis, I present deep neural networks to estimate an asset pricing model for individual stock returns that takes advantage of the vast amount of conditioning information, while keeping a fully flexible form and accounting for time-variation. The key innovations are to use the fundamental no-arbitrage condition as criterion function to construct the most informative test assets with an adversarial approach and to extract the states of the economy from many macroeconomic time series. Our asset pricing model outperforms out-of-sample all benchmark approaches in terms of Sharpe ratio, explained variation and pricing errors and identifies the key factors that drive asset prices.