Download or read book Essays in Risk Modeling Asset Pricing and Network Measurement in Finance written by Bixi Jian and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "Modelling financial interconnections and forecasting extreme losses are crucial for risk management in financial markets. This thesis studies multivariate risk spillovers at the high-dimensional market network level, as well as univariate extreme risk modelling at the asset level. The first chapter proposes a novel time series econometric method to measure high-dimensional directed and weighted market network structures. Direct and spillover effects at different horizons, between nodes and between groups, are measured in a unified framework. Using a similar network measurement framework, the second chapter investigates the relationship between stock illiquidity spillovers and the cross-section of expected returns. I find that central industries in illiquidity transmission networks earn higher average stock returns (around 4% per year) than other industries.The third chapter proposes a new Dynamic Stable GARCH model, which involves the use of stable distribution with time-dependent tail parameters to model and forecast tail risks in an extremely high volatility environment. We can differentiate extreme risks from normal market fluctuations with this model." --

Download or read book Essays in Empirical Asset Pricing written by Ali Sharifkhani and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In my dissertation, I study different channels through which shocks in the real economy can affect financial asset returns. The first chapter studies immigration policy shocks as a source of risk in the financial markets. Using a comprehensive set of data on H-1B visa petitions, I construct an occupation-level measure for labor market competition between skilled immigrant and local workers. I find that stocks of firms with a high share of labor for which skilled immigrants are close substitutes outperform their peers with a low share. I show that this premium is explained by firms' differential exposures to priced immigration policy shocks that shift the supply of skilled immigrant labor. These shocks differentially impact wages across occupations, leading to an asymmetric effect on firms' cash flows through labor expenditure. In the second chapter, based on a joint work with Esther Eiling and Raymond Kan, we investigate the asset pricing implications of sectoral labor reallocation shocks that change the optimal allocation of workers across industries. We find that a proxy for this type of labor market shocks has very strong predictive power for future stock market returns. We propose a production-based asset pricing model that links the return predictability to time-varying labor adjustment costs. When human capital is tied to the industry, hiring workers from other industries involves more search and training costs. Hence, sectoral reallocation shocks lead to lower returns to hiring and therefore lower future stock returns. In the third chapter, we identify inter-sectoral trade networks as important conduits of industry shocks and provide the first explanation for an empirical regularity in the term structure of industry returns. Specifically, my co-author Mikhail Simutin and I show that industry shocks propagating along this network can feed back to the originating industry, causing an "echo'' - intermediate-term autocorrelation in returns. Adopting techniques from graph theory, we find that the strength of the trade network feedback is a crucial determinant of the echo effect in industry returns. Consistent with limited-information models, the relation between feedback strength and echo profits is strongest in industries with information diffusion frictions along the feedback loop.

Download or read book Computational Methods in Financial Engineering written by Erricos Kontoghiorghes and published by Springer Science & Business Media. This book was released on 2008-02-26 with total page 425 pages. Available in PDF, EPUB and Kindle. Book excerpt: Computational models and methods are central to the analysis of economic and financial decisions. Simulation and optimisation are widely used as tools of analysis, modelling and testing. The focus of this book is the development of computational methods and analytical models in financial engineering that rely on computation. The book contains eighteen chapters written by leading researchers in the area on portfolio optimization and option pricing; estimation and classification; banking; risk and macroeconomic modelling. It explores and brings together current research tools and will be of interest to researchers, analysts and practitioners in policy and investment decisions in economics and finance.

Download or read book Essays on Risk Measurement and Fund Separation written by Fang Liu and published by . This book was released on 2015 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter 1 extends Cass and Stiglitz's analysis of preference-based mutual fund separation. We show that high degrees of fund separation can be constructed by adding inverse marginal utility functions exhibiting lower degrees of separation. However, this method does not allow us to find all utility functions satisfying fund separation. In general, we do not know how to write the primal utility functions in these models in closed form, but we can do so in the special case of SAHARA utility defined by Chen et al. and for a new class of GOBI preferences introduced here. We show that there is money separation (in which the riskless asset can be one of the funds) if and only if there is a fund (which may not be the riskless asset) with a constant allocation as wealth changes. Chapter 2 generalizes the concept of "systematic risk" to a broad class of risk measures potentially accounting for high distribution moments, downside risk, rare disasters, as well as other risk attributes. We offer two different approaches. First is an equilibrium framework generalizing the Capital Asset Pricing Model. Second is an axiomatic approach resulting in a systematic risk measure as the unique solution to a risk allocation problem. Both approaches lead to similar results extending the traditional beta to capture multiple dimensions of risk. The results lend themselves naturally to empirical investigation. Chapter 3 proposes a regression approach to recovering the return distribution of an individual asset conditional on the return of an aggregate index based on their marginal distributions. This approach relies on the identifying assumption that the conditional return distribution of the asset given the index return does not vary over time. I show how to empirically implement this approach using option price data. I then apply this approach to examine the cross-sectional equity risk premium associated with systematic disaster risk, to estimate the exposure of banks to systemic shocks, and to extend the Ross (Journal of Finance, 2014) recovery theorem to individual assets.

Download or read book Risk Management and Value written by Mondher Bellalah and published by World Scientific. This book was released on 2008 with total page 645 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a comprehensive discussion of the issues related to risk, volatility, value and risk management. It includes a selection of the best papers presented at the Fourth International Finance Conference 2007, qualified by Professor James Heckman, the 2000 Nobel Prize Laureate in Economics, as a high level one. The first half of the book examines ways to manage risk and compute value-at-risk for exchange risk associated to debt portfolios and portfolios of equity. It also covers the Basel II framework implementation and securitisation. The effects of volatility and risk on the valuation of financial assets are further studied in detail. The second half of the book is dedicated to the banking industry, banking competition on the credit market, banking risk and distress, market valuation, managerial risk taking, and value in the ICT activity. With its inclusion of new concepts and recent literature, academics and risk managers will want to read this book. Sample Chapter(s). Introduction (40 KB). Chapter 1: Managing Derivatives in the Presence of a Smile Effect and Incomplete Information (97 KB). Contents: Managing Derivatives in the Presence of a Smile Effect and Incomplete Information (M Bellalah); A Value-at-Risk Approach to Assess Exchange Risk Associated to a Public Debt Portfolio: The Case of a Small Developing Economy (W Ajili); A Method to Find Historical VaR for Portfolio that Follows S&P CNX Nifty Index by Estimating the Index Value (K V N M Ramesh); Some Considerations on the Relationship between Corruption and Economic Growth (V Dragota et al.); Financial Risk Management by Derivatives Caused from Weather Conditions: Its Applicability for Trkiye (T uzkan); The Basel II Framework Implementation and Securitization (M-F Lamy); Stochastic Time Change, Volatility, and Normality of Returns: A High-Frequency Data Analysis with a Sample of LSE Stocks (O Borsali & A Zenaidi); The Behavior of the Implied Volatility Surface: Evidence from Crude Oil Futures Options (A Bouden); Procyclical Behavior of Loan Loss Provisions and Banking Strategies: An Application to the European Banks (D D Dinamona); Market Power and Banking Competition on the Credit Market (I Lapteacru); Early Warning Detection of Banking Distress OCo Is Failure Possible for European Banks? (A Naouar); Portfolio Diversification and Market Share Analysis for Romanian Insurance Companies (M Dragota et al.); On the Closed-End Funds Discounts/Premiums in the Context of the Investor Sentiment Theory (A P C do Monte & M J da Rocha Armada); Why has Idiosyncratic Volatility Increased in Europe? (J-E Palard); Debt Valuation, Enterprise Assessment and Applications (D Vanoverberghe); Does The Tunisian Stock Market Overreact? (F Hammami & E Abaoub); Investor-Venture Capitalist Relationship: Asymmetric Information, Uncertainty, and Monitoring (M Cherif & S Sraieb); Threshold Mean Reversion in Stock Prices (F Jawadi); Households'' Expectations of Unemployment: New Evidence from French Microdata (S Ghabri); Corporate Governance and Managerial Risk Taking: Empirical Study in the Tunisian Context (A B Aroui & F W B M Douagi); Nonlinearity and Genetic Algorithms in the Decision-Making Process (N Hachicha & A Bouri); ICT and Performance of the Companies: The Case of the Tunisian Companies (J Ziadi); Option Market Microstructure (J-M Sahut); Does the Standardization of Business Processes Improve Management? The Case of Enterprise Resource Planning Systems (T Chtioui); Does Macroeconomic Transparency Help Governments be Solvent? Evidence from Recent Data (R Mallat & D K Nguyen). Readership: Academics and risk managers."

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 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.

Download or read book The Measurement of Market Risk written by Pierre-Yves Moix and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 281 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a revised version of my doctoral dissertation submitted to the University of St. Gallen in October 1999. I would like to thank Dr. oec. Marc Wildi whose careful reading of much of the text led to many improvements. All errors remain mine. Pfiiffikon SZ, Switzerland, March 2001 Pierre-Yves Moix Preface to the dissertation "Education is man's going forward from cocksure ignorance to thoughtful uncertainty" Don Clark's Scrapbook quoted in Wonnacott and Wonnacott (1990). After several years of banking practice, I decided to give up some of my certitudes and considered this thesis project a good opportunity to study some of the quantitative tools necessary for the modelling of uncertainty. lowe very much to Prof. Dr. Karl Frauendorfer, the referee of my thesis, for the time he took to read the manuscript and for the numerous valuable suggestions he made. I am also very grateful to Prof. Dr. Klaus Spremann who kindly accepted to co-refer my thesis and who strengthened my inter est in finance during my study period. During my time at the Institute for Operations Research of the University of St. Gallen (lfU-HSG) I had the opportunity to participate in the project "RiskLab" which provides a very profitable link between finance practice and academics. I would especially like to thank Dr. Christophe Rouvinez from Credit Suisse for his comments and all the data he provided so generously.

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 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 Essays on Asset Pricing and Financial Institutions written by Patrick Christian Kiefer and published by . This book was released on 2018 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasts of risk prices at alternative time scales can be used to consolidate history dependence in asset return time series. The resulting Markovian structure identifies a martingale component in the latent transition dynamics. I apply the model to U.S. stock markets and find the concentration of return volatility on the martingale component - the spectral gap - is countercyclical, and predicts annual market returns out-of-sample (o.o.s.) with an R-squared of 10.8%. Value (HML) predictability is concave and front-heavy, peaking at a one-year 14.7% o.o.s. R-squared. In contrast, the momentum predictability term structure is convex, insignificant on the short end, but accelerates to 31.4% o.o.s. R-squared at the three-year horizon. I form timing portfolios to investigate the risk content of the aggregate forecasts. Incremental gains from timing value are compensation for bearing systematic shocks to time-varying expected returns. Exposure to the market timing portfolio is cross-sectionally priced, while gains from timing size (SMB) are not. The findings provide new restrictions for parametric asset pricing theories. Incomplete human capital markets induce unexpected rebalancing costs that are mitigated by a bank. Ex-ante, the bank exchanges risky endowments for demandable liabilities. An ex-post withdrawal corresponds to exercising a put option on the market, used to resolve an unexpected portfolio choice problem. Portfolio choice opens a risk aversion channel that distinguishes our predictions from Diamond and Dybvig (1983) and related models. In these models, deposits resolve consumption-timing tensions by accommodating the investor's intertemporal elasticity of substitution (IES). The inclusion of risk-based incentives allow us to characterize the endogenous link between the intermediary balance sheet and the preference-based pricing kernel. Moreover, ex-post rebalancing incentives relax enforcement problems for ex-ante optimal policies in incomplete markets. This provides a justification for the coexistence of intermediation and market institutions.

Download or read book Three Essays on Asset Pricing Model with Heterogenous Agents written by Tae-Jin Kang and published by . This book was released on 1991 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Financial Network Theory written by Hanchao Yang and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Asset Pricing written by Lei Zhao and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using more stringent test assets and more formal model diagnostic tools, the first essay demonstrates the importance of higher-order comoment risks in asset pricing by assessing the performance of the most commonly used asset pricing models with and without these risks incorporated. Specifically, we find that higher-order comoment risks help the Fama and French serial pricing kernels to be closer to the admissible pricing kernel and that the newly developed Fama and French five-factor model (Fama and French, 2015), when augmented by the quadratic and cubic terms of the market return and with momentum incorporated, requires the least adjustment to be admissible.

Download or read book Essays on Empirical Asset Pricing written by Xiang Zhang and published by . This book was released on 2013 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays on empirical asset pricing around three themes: evaluating linear factor asset pricing models by comparing their misspecified measures, understanding the long-run risk on consumption-leisure to investigate their pricing performances on cross-sectional returns, and evaluating conditional asset pricing models by using the methodology of dynamic cross-sectional regressions. The first chapter is ̀̀Comparing Asset Pricing Models: What does the Hansen-Jagannathan Distance Tell Us?''. It compares the relative performance of some important linear asset pricing models based on the Hansen-Jagannathan (HJ) distance using data over a long sample period from 1952-2011 based on U.S. market. The main results are as follows: first, among return-based linear models, the Fama-French (1993) five-factor model performs best in terms of the normalized pricing errors, compared with the other candidates. On the other hand, the macro-factor model of Chen, Roll, and Ross (1986) five-factor is not able to explain industry portfolios: its performance is even worse than that of the classical CAPM. Second, the Yogo (2006) non-durable and durable consumption model is the least misspecified, among consumption-based asset pricing models, in capturing the spread in industry and size portfolios. Third, the Lettau and Ludvigson (2002) scaled consumption-based CAPM (C-CAPM) model obtains the smallest normalized pricing errors pricing gross and excess returns on size portfolios, respectively, while Santos and Veronesi (2006) scaled C-CAPM model does better in explain the return spread on portfolios of U.S. government bonds. The second chapter (̀̀Leisure, Consumption and Long Run Risk: An Empirical Evaluation'') uses a long-run risk model with non-separable leisure and consumption, and studies its ability to price equity returns on a variety of portfolios of U.S. stocks using data from 1948-2011. It builds on early work by Eichenbaum et al. (1988) that explores the empirical properties of intertemporal asset pricing models where the representative agent has utility over consumption and leisure. Here we use the framework in Uhlig (2007) that allows for a stochastic discount factor with news about long-run growth in consumption and leisure. To evaluate our long-run model, we assess its performance relative to standard asset pricing models in explaining the cross-section of returns across size, industry and value-growth portfolios. We find that the long-run consumption-leisure model cannot be rejected by the J-statistic and it does better than the standard C-CAPM, the Yogo durable consumption and Fama-French three-factor models. We also rank the normalized pricing errors using the HJ distance: our model has a smaller HJ distance than other candidate models. Our paper is the first, as far as we are aware, to use leisure data with adjusted working hours as a measure of leisure i.e., defined as the difference between a fixed time endowment and the observable hours spent on working, home production, schooling, communication, and personal care (Yang (2010)). The third essay: ̀̀Empirical Evaluation of Conditional Asset Pricing Models: An Economic Perspective'' uses dynamic Fama-MacBeth cross-sectional regressions and tests the performance of several important conditional asset pricing models when allowing for time-varying price of risk. It compares the performance of conditional asset pricing models, in terms of their ability to explain the cross-section of returns across momentum, industry, value-growth and government bond portfolios. We use the new methodology introduced by Adrian et al. (2012). Our main results are as follows: first we find that the Lettau and Ludvigson (2001) conditional model does better than other models in explaining the cross-section of momentum and value-growth portfolios. Second we find that the Piazessi et al. (2007) consumption model does better than others in pricing the cross-section of industry portfolios. Finally, we find that in the case of the cross-section of risk premia on U.S. government bond portfolios the conditional model in Santos and Veronesi (2006) outperforms other candidate models. Overall, however, the Lettau and Ludvigson (2001) model does better than other candidate models. Our main contributions here is using a recently developed method of dynamic Fama-MacBeth regressions to evaluate the performance of leading conditional CAPM (C-CAPM) models in a common set of test assets over the time period from 1951-2012.

Download or read book Essays on Volatility Measurement Model Combination and Asset Pricing written by Joachim Löbb and published by . This book was released on 2006 with total page 151 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Measuring Asset Pricing Anomalies written by Michael Gorman and published by . This book was released on 2016 with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional methods of measuring asset pricing anomalies have historically relied on full sample tests of static parameters. With the increase of computational power and data available we are able to allow for time varying factor loadings for a portfolio based on asset rotation and also time varying factors by asset. In the first paper we find that commonly used estimates of time varying asset pricing anomalies contain significant bias. We are able to show that the historical returns used to select momentum portfolios result in biased data in the short window asset level regressions which the literature uses to estimate portfolio parameters. This is caused through a non-random selection criterion which systematically chooses high epsilon assets. These nonrandom epsilons, when regressed upon bias estimates of alpha, and through the correlation structure of the parameters they also bias the estimates of beta. We present a new methodology that is not subject to this bias, and allows for an accurate measurement of the size of anomalies. In executing this we find that inefficient portfolio rotation in the original portfolio level estimates is also indicative of bias. As such we suggest that the new methodology we propose is more accurate and less susceptible to bias than those currently in use in the literature. The new model suggests that to this point the risk adjusted returns of the momentum portfolio have been underestimated in the literature. In the second paper we demonstrate that the momentum anomaly is driven by a small number of assets in the market using our new model and the methodology of False Discovery Rates. We show that these assets, behave differently in long and short portfolios, and also perform differently during the first month reversal period. Finally we demonstrate that an appropriately risk adjusted momentum alpha shows that extreme months are not sufficient to explain away momentum, and that poor returns in extreme months are overstated by traditional methods of measuring momentum. To this extent we claim that market downturns in the last 15 years have been insufficient to effectively eliminate the momentum anomaly as has been suggested.