Download or read book Essays on Asset Pricing and Financial Econometrics written by Qiang Kang and published by . This book was released on 2002 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Asset Pricing and Financial Econometrics written by Georgios Skoulakis and published by . This book was released on 2006 with total page 220 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Econometrics and Asset Pricing written by Kokouvi Tewou and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is organized in three chapters. In the first chapter (which is co-authored with Ilze Kalnina), we propose a statistical test to assess the adequacy of the most popular measure of idiosyncratic risk, which is the idiosyncratic volatility. Our test statistic exploits the idea that a "good" measure of the idiosyncratic risk should be uncorrelated in the cross-section. Using in-fill asymptotics, we study the theoretical properties of the test and find that it has a non-standard behaviour due to various biases induced by the latency of the idiosyncratic volatility. Moreover, we propose a regression model that can be used to reduce if not eliminate the cross-sectional dependences in assets idiosyncratic volatilities. The second chapter of my thesis is the fruit of a colaboration with Christian Dorion and Pierre Chaigneau. In this chapter, we study the relevance of higher-order risk aversion in asset pricing. The evidence in Kraus and Litzenberger (1976) and Harvey and Siddique (2000a) has spurred the literature on the estimation of the risk premiums attached to skewness and kurtosis risk in addition to the standard variance risk. However, most of these studies focus on the estimation of unconditional premiums or average premiums. In this chapter, we propose a methodology that allows to accurately estimate the time-varying higher-order risk aversions using options prices. Our study complements the literature as we also study the higher-order risks beyond the kurtosis such as hyperskewness and hyperkurtosis risks which are valued by a CRRA investor. . In my third chapter, I study the term-structure of price of co-skewness risk. Co-Skewness risk captures the portion of the stock returns asymmetry that arises as a result of market returns asymmetry. I propose a general methodology that allows to study the multi-horizon pricing of this risk in contrast to many existing studies.

Download or read book Essays in Financial Econometrics Asset Pricing and Corporate Finance written by Markus Pelger and published by . This book was released on 2015 with total page 316 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation explores how tail risk and systematic risk affects various aspects of risk management and asset pricing. My research contributions are in econometric and statistical theory, in finance theory and empirical data analysis. In Chapter 1 I develop the statistical inferential theory for high-frequency factor modeling. In Chapter 2 I apply these methods in an extensive empirical study. In Chapter 3 I analyze the effect of jumps on asset pricing in arbitrage-free markets. Chapter 4 develops a general structural credit risk model with endogenous default and tail risk and analyzes the incentive effects of contingent capital. Chapter 5 derives various evaluation models for contingent capital with tail risk. Chapter 1 develops a statistical theory to estimate an unknown factor structure based on financial high-frequency data. I derive a new estimator for the number of factors and derive consistent and asymptotically mixed-normal estimators of the loadings and factors under the assumption of a large number of cross-sectional and high-frequency observations. The estimation approach can separate factors for normal "continuous" and rare jump risk. The estimators for the loadings and factors are based on the principal component analysis of the quadratic covariation matrix. The estimator for the number of factors uses a perturbed eigenvalue ratio statistic. The results are obtained under general conditions, that allow for a very rich class of stochastic processes and for serial and cross-sectional correlation in the idiosyncratic components. Chapter 2 is an empirical application of my high-frequency factor estimation techniques. Under a large dimensional approximate factor model for asset returns, I use high-frequency data for the S & P 500 firms to estimate the latent continuous and jump factors. I estimate four very persistent continuous systematic factors for 2007 to 2012 and three from 2003 to 2006. These four continuous factors can be approximated very well by a market, an oil, a finance and an electricity portfolio. The value, size and momentum factors play no significant role in explaining these factors. For the time period 2003 to 2006 the finance factor seems to disappear. There exists only one persistent jump factor, namely a market jump factor. Using implied volatilities from option price data, I analyze the systematic factor structure of the volatilities. There is only one persistent market volatility factor, while during the financial crisis an additional temporary banking volatility factor appears. Based on the estimated factors, I can decompose the leverage effect, i.e. the correlation of the asset return with its volatility, into a systematic and an idiosyncratic component. The negative leverage effect is mainly driven by the systematic component, while it can be non-existent for idiosyncratic risk. In Chapter 3 I analyze the effect of jumps on asset pricing in arbitrage-free markets and I show that jumps have to come as a surprise in an arbitrage-free market. I model asset prices in the most general sensible form as special semimartingales. This approach allows me to also include jumps in the asset price process. I show that the existence of an equivalent martingale measure, which is essentially equivalent to no-arbitrage, implies that the asset prices cannot exhibit predictable jumps. Hence, in arbitrage-free markets the occurrence and the size of any jump of the asset price cannot be known before it happens. In practical applications it is basically not possible to distinguish between predictable and unpredictable discontinuities in the price process. The empirical literature has typically assumed as an identification condition that there are no predictable jumps. My result shows that this identification condition follows from the existence of an equivalent martingale measure, and hence essentially comes for free in arbitrage-free markets. Chapter 4 is joint work with Behzad Nouri, Nan Chen and Paul Glasserman. Contingent capital in the form of debt that converts to equity as a bank approaches financial distress offers a potential solution to the problem of banks that are too big to fail. This chapter studies the design of contingent convertible bonds and their incentive effects in a structural model with endogenous default, debt rollover, and tail risk in the form of downward jumps in asset value. We show that once a firm issues contingent convertibles, the shareholders' optimal bankruptcy boundary can be at one of two levels: a lower level with a lower default risk or a higher level at which default precedes conversion. An increase in the firm's total debt load can move the firm from the first regime to the second, a phenomenon we call debt-induced collapse because it is accompanied by a sharp drop in equity value. We show that setting the contractual trigger for conversion sufficiently high avoids this hazard. With this condition in place, we investigate the effect of contingent capital and debt maturity on capital structure, debt overhang, and asset substitution. We also calibrate the model to past data on the largest U.S. bank holding companies to see what impact contingent convertible debt might have had under the conditions of the financial crisis. Chapter 5 develops and compares different modeling approaches for contingent capital with tail risk, debt rollover and endogenous default. In order to apply contingent convertible capital in practice it is desirable to base the conversion on observable market prices that can constantly adjust to new information in contrast to accounting triggers. I show how to use credit spreads and the risk premium of credit default swaps to construct the conversion trigger and to evaluate the contracts under this specification.

Download or read book Essays in Asset Pricing and Financial Econometrics written by Yannick Dillschneider and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Asset Pricing and Financial Econometrics written by Dongmeng Ren and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter, we compare the finite sample power of short and long-horizon tests in nonlinear predictive regression models of regime switching between bull and bear markets, allowing for time varying transition probabilities. As a point of reference, we also provide a similar comparison in a linear predictive regression model without regime switching. Overall, our results do not support the contention of higher power in longer horizon tests in either the linear or nonlinear regime switching models. Nonetheless, it is possible that other plausible nonlinear models provide stronger justification for long-horizon tests. Using finite sample simulation methods, we assess the power of long-horizon predictive tests and compare them to their short-run counterparts, when the true underlying model contains financial asset bubbles. Our results indicate that long-run predictive test using valuation predictors -- specifically the dividend price ratio-- do pick up the return predictability inherent in the asset bubbles. However, after size-adjustment, the long-run predictive framework has a small advantage over its short-run counterpart when the predictor is highly persistent and provides a larger, yet still modest power improvement when the predictor is moderately persistent. The third chapter proposes a simple Bayesian learning framework to assess leverage ratios in the presence of parameter uncertainty about mean log cash flow. In particular it can explain why firm's leverage ratios have been observed to increase with firm age. Market values are increasing in uncertainty about mean cash flow and leverage ratios are decreasing with market values. Over the life period of firm, the managers and investors rationally learn from realized cash flows. Due to the convex relationship between cash flow and firm value, ceteris paribus, this results in a decrease in market value and an increase in the leverage ratio. Firm level panel data provides empirical evidence consistent with the model predictions after correcting for the endogeneity of the book to market and profitability control variates. The empirical results suggest that the firm leverage ratio increases over firm age due to learning.

Download or read book Essays on Macroeconomics and Financial Econometrics written by Na Jiang and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes two chapters. The first chapter focuses on the asset pricing implication of the consumption-based capital asset pricing model with incomplete asset markets. The second chapter provides a new explanation for the labor share decline in the US manufacturing sector. Chapter 1 This chapter evaluates the asset pricing implication of the consumption-based capital asset pricing model with incomplete asset markets. Instead of measuring risk by the covariance of an asset's return and the representative household's marginal rate of substitution, I measure risk by the covariance of an asset's return and the stochastic discount factor that depends on higher-order moments of the cross-sectional distribution of individual household's consumption. While the representative household's marginal rate of substitution explains little of the variation in average returns across the 25 Fama-French portfolios, I find that the stochastic discount factor expressed as the average of individual households' marginal rate of substitution could explain more than 20% of this variation based on 1982-2017 Consumer Expenditure Survey data. Chapter 2 Marketing labor cost accounts for a substantial fraction of total labor costs in the US manufacturing sector, and previous research has argued that firms enjoy higher operating efficiency when selling to fewer, larger customers. To study the effect of customer choice and the associated marketing labor cost on the upstream industry's labor share, this paper develops a tractable model in which upstream firms incur a fixed relationship cost (marketing labor cost) to match with each downstream customer, choose an optimal number of customers, and hire production workers in a frictional labor market. Fit to the customer records of US manufacturing firms in Compustat, the model captures the key cross-sectional relationship between customer reliance (sales share from dominant buyers), sales, and operating efficiency. In the calibration, a mean-preserving demand concentration shock that captures 43% of the rise in customer reliance can explain 39% of the decline in labor share in US manufacturing from the 1990s to the 2000s. The mechanism is that when the downstream demand becomes more concentrated among fewer and larger firms, on average upstream firms optimally sell to fewer customers and reduce their marketing labor cost, which in turn leads to the rise of customer reliance and decline of labor share observed in the data.

Download or read book Theory and Reality in Financial Economics written by George M. Frankfurter and published by World Scientific. This book was released on 2007 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt: The current literature on financial economics is dominated by neoclassical dogma and, supposedly, the notion of value-neutrality. However, the failure of neoclassical economics to deal with real financial phenomena suggests that this might be too simplistic of an approach. This book consists of a collection of essays dealing with financial markets'' imperfections, and the inability of neoclassical economics to deal with such imperfections. Its central argument is that financial economics, as based on the tenets of neoclassical economics, cannot answer or solve the real-life problems that people face. It also shows the direct relationship between economics and politics OCo something that is usually denied in academic models, given that science is supposed to be value-neutral. In this thought-provoking and avant-garde book, the author not only exposes what has gone wrong, but also suggests reforms to both the academic and the political-economic systems that might help make markets fair rather than efficient. Drawing on interdisciplinary fields, this book will appeal to readers who are interested in finance, economics, business, the political economy and philosophy. Sample Chapter(s). Foreword (37 KB). Chapter 1: Method and Methodology (146 KB). Contents: Method and Methodology; What is All Efficiency?; Still Autistic Finance; The Young Finance Faculty''s Guide to Publishing; Prolific Authors in Finance; For-Profit Education: An Idea That Should be Put to Rest?; Weep Not for Microsoft: Monopoly''s Fatal Exception; The Socio-Economics of Scandals; Desperately Seeking Toto; And Now for Something Entirely Different; After the Ball; Capitalism or Industrial Fiefdom; The Theory of Fair Markets (TFM): Toward a New Finance Paradigm. Readership: Graduate students of finance; students of economics, economic methodology and philosophy of science."

Download or read book Essays in Econometrics of Financial Asset Pricing Models written by Mustafa Arif Karaman and published by . This book was released on 2012 with total page 149 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Economics written by Rita Biswas and published by Emerald Group Publishing. This book was released on 2019-10-24 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume, dedicated to John W. Kensinger, explores a variety of topics in financial economics, including firm growth, investment risks, and the profitability of the banking industry. With its global perspective, Essays in Financial Economics is a valuable addition to the bookshelf of any researcher in finance.

Download or read book Information Asset Pricing and Market Volatility written by Yexiao Xu and published by . This book was released on 2001 with total page 183 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Econometrics written by Dae Hee Jeong and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I consider continuous time asset pricing models with stochastic differential utility incorporating decision makers' concern with ambiguity on true probability measure. In order to identify and estimate key parameters in the models, I use a novel econometric methodology developed recently by Park (2008) for the statistical inference on continuous time conditional mean models. The methodology only imposes the condition that the pricing error is a continuous martingale to achieve identification, and obtain consistent and asymptotically normal estimates of the unknown parameters. Under a representative agent setting, I empirically evaluate alternative preference specifications including a multiple-prior recursive utility. My empirical findings are summarized as follows: Relative risk aversion is estimated around 1.5-5.5 with ambiguity aversion and 6-14 without ambiguity aversion. Related, the estimated ambiguity aversion is both economically and statistically significant and including the ambiguity aversion clearly lowers relative risk aversion. The elasticity of intertemporal substitution (EIS) is higher than 1, around 1.3-22 with ambiguity aversion, and quite high without ambiguity aversion. The identification of EIS appears to be fairly weak, as observed by many previous authors, though other aspects of my empirical results seem quite robust. Next, I develop an approach to test for martingale in a continuous time framework. The approach yields various test statistics that are consistent against a wide class of nonmartingale semimartingales. A novel aspect of my approach is to use a time change defined by the inverse of the quadratic variation of a semimartingale, which is to be tested for the martingale hypothesis. With the time change, a continuous semimartingale reduces to Brownian motion if and only if it is a continuous martingale. This follows immediately from the celebrated theorem by Dambis, Dubins and Schwarz. For the test of martingale, I may therefore see if the given process becomes Brownian motion after the time change. I use several existing tests for multivariate normality to test whether the time changed process is indeed Brownian motion. I provide asymptotic theories for my test statistics, on the assumption that the sampling interval decreases, as well as the time horizon expands. The stationarity of the underlying process is not assumed, so that my results are applicable also to nonstationary processes. A Monte-Carlo study shows that our tests perform very well for a wide range of realistic alternatives and have superior power than other discrete time tests.

Download or read book Essays in Financial Economics written by Xu Lu (Researcher in finance) and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation centers on the asset pricing and macro-finance implications of intermediation. In particular, I examine how demand and supply frictions affect asset prices, with well-identified empirical support from granular data and insights from applied theory. The first chapter, Monetary Transmission, and Portfolio Rebalancing: A Cross-sectional Approach, joint with Lingxuan Wu, addresses the puzzlingly significant stock market reactions to monetary shocks through a novel demand-based mechanism. This chapter unveils the crucial role of intermediaries' demand in monetary transmission through their preferences for a target share between equities and bonds. For example, given a one percent monetary shock, bond prices devaluate ten percent if the duration is ten. To maintain the pre-shock equity-bond ratios, institutions sell their equity holdings, creating downward price pressure. Such institutions serve as an amplifying mechanism for aggregate market returns. The rebalancing channel provides rich cross-sectional implications, and the chapter identifies empirical evidence in the cross-section unique to the mechanism. The second chapter, The Political Economy of China's Housing Boom, joint with Jiwei Zhang, uses transaction-level land sales data to understand how the Chinese Communist Party's cadre promotion system contributed to China's real estate boom. Promotions of China's city-level communist officials to higher ranks were largely based on local GDP performances. In turn, local officials were incentivized to sell more land to firms with higher GDP contributions instead of developing the local housing market, pushing up the housing prices locally. Analyzing a large dataset of Chinese Communist Party members' biographies, we identify exogenous variations in promotion chances caused by social connections between the local officials and their bosses and find that the shortage in land supply induced by promotion incentives played an important role in the Chinese housing boom.

Download or read book Essays in Financial Economics written by Hang Bai and published by . This book was released on 2016 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters that aim to understand the fundamental relations between asset prices and the real/financial decisions of firms. The first chapter studies the credit risk implications of labor market fluctuations, by incorporating defaultable debt into a textbook search model of unemployment. In the model, the present value of cash flows that firms extract from workers simultaneously drives unemployment dynamics and credit risk variation. The model generates fat right tails in both unemployment and credit spreads, and their strong comovement over the business cycle, in line with the historical U.S. data from 1929 to 2015. Quantitatively, the model reasonably replicates the level, volatility and cyclicality of credit spreads. Overall, the paper highlights labor market fluctuations as an important macroeconomic driver of credit risk variation. In the second chapter, co-authored with Kewei Hou, Howard Kung, and Lu Zhang, we study how rare economic disasters, events such as the Great Depression, affect the cross section of stock returns, in particular the relation between the CAPM and the value premium. In historical U.S. data, it is well-established that the CAPM fails miserably to explain the value premium during the post-Compustat period. Perhaps less well-known is that the CAPM turns out to capture the value premium pretty well during the long sample period from 1929 to 2014. To understand the drivers behind the differential performance of the CAPM, we embed disasters into a stylied investment-based asset pricing model. The key result is that our single-factor model reproduces the failure of the CAPM in explaining the value premium in finite samples in which disasters are not materialized, and its relative success in samples in which disasters are materialized. Due to measurement errors in pre-ranking market betas, the relation between these estimated betas and average returns is flat in simulations, consistent with the beta “anomaly,” even though the relation between true betas and expected returns is strongly positive. The third chapter empirically examines how asset returns vary over the credit cycle. I construct a variable called Corporate Credit Growth (hereafter CCG) to capture the phase of the credit cycle, and show that CCG strongly negatively predicts future excess stock returns both in sample and out of sample. A one-standard-deviation decrease in CCG is associated with a sizable 1.5% increase in the equity premium over the next quarter. The predictive power of CCG can not be accounted for by a wide range of previously studied predictors. Impulse response analysis indicates CCG contains information about the term structure of expected stock returns. Finally, the paper examines alternative indicators of the credit cycle and finds that credit flows to other sectors of the economy do not appear to predict returns in the equity market.

Download or read book Essays in Financial Economics written by David G. Berger and published by . This book was released on 2008 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Economics written by Lawrence David Warren Schmidt and published by . This book was released on 2015 with total page 243 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation addresses several questions in financial economics. A common thread is the study of conditional distributions and higher moments. The first chapter proposes state-dependent, idiosyncratic tail risk as a key driver of asset pricing dynamics. In standard models, the only sources of priced macroeconomic risk govern time-variation in aggregate consumption and/or preferences. When markets are incomplete, agents care not just about the level of consumption, but also its redistribution across agents. Administrative earnings data suggest that the conditional tails of the cross-sectional distribution of labor income growth rates are highly cyclical; its left and right tails become fatter and thinner, respectively, in recessions. These features are consistent with a model in which households are exposed to rare, very large shocks and the probability of these shocks varies over time. My paper measures, prices, and demonstrates the quantitative importance of labor market event risk. The second chapter studies investor redemption behavior from money market mutual funds in September 2008. These funds are a popular alternative to bank accounts for cash investments, particularly for large corporations and institutional investors. Like banks, MMF investments have a liquidity mismatch between assets and liabilities that can create the potential for a run. There is an active debate about the mechanisms generating run-like behavior, particularly about the importance of strategic complementarities--investors' self-fulfilling beliefs about other investors' actions (i.e. "panic"). Data from the money market provide empirical evidence of the quantitative importance of complementarities in the data. Another area of asset pricing where time-varying distributions becomes important is option pricing. The third chapter studies the relationship between the option-implied distribution of market returns and estimates of the distribution obtained from time series methods. The ratio of the two densities, the pricing kernel, provides "model-free" insights about preferences. Standard models predict that the pricing kernel should be a monotonically decreasing function of the market return, but many estimates violate this property. We develop a formal, nonparametric test of pricing kernel monotonicity, provide general conditions under which the test is applicable, then perform the test using S&P 500 options data. We frequently reject the hypothesis of monotonicity.

Download or read book Essays in Financial Economics written by Joel M. Vanden and published by . This book was released on 1999 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt: