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Book Tests of the Relations Among Marketwide Factors Firm specific Variables and Stock Returns Using a Conditional Asset Pricing Model

Download or read book Tests of the Relations Among Marketwide Factors Firm specific Variables and Stock Returns Using a Conditional Asset Pricing Model written by and published by . This book was released on 1995 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Book Tests of the Conditional Asset Pricing Model

Download or read book Tests of the Conditional Asset Pricing Model written by Stuart Hyde and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the relationship between consumption and the term structure using U.K. interest rate data. We demonstrate that the term structure contains information about future economic activity as implied by the benchmark time separable power utility consumption based capital asset pricing model (C-CAPM) since the yield spread has forecasting power for future consumption growth. Further, we analyze the ability of this benchmark and two alternative models which adopt utility functions characterized by non-separability, namely, the extension to the habit formation model of Campbell and Cochrane (1999) proposed by Wachter (2006) and the housing C-CAPM proposed by Piazzesi et al. (2007). Our findings are supportive of the habit formation specification of Wachter (2006), other models fail to yield economically plausible parameter values.

Book What to Do About a Latent Factor

Download or read book What to Do About a Latent Factor written by Todd Prono and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: A new model misspecification measure for linear asset pricing models is proposed. The origins of this measure are in Shanken (1987) and Kandel and Stambaugh (1985, 1995), where it is argued that the true market return is inherently latent and, as a consequence, only ever partially observed. Tests of asset pricing models that rely on the market return as a risk factor and are based, by necessity, on an observable proxy to this factor are then misspecified. The proposed misspecification measure, which assigns an upper bound to the correlation between the true market return and the observable proxy return used to conduct the test, can be estimated entirely and directly from observable data. This measure is suited both for testing models that include the market return as a pricing factor in a traditional sense (i.e., determining whether the given model does or does not price a collection of risky assets) and ranking those models (i.e., gauging which model performs the best). The measure is used to price portfolios reflecting the size, value, and momentum premiums. While neither the conditional CAPM nor the ICAPM is shown to offer any improvement over the simple CAPM, all three models are shown to perform materially better under the proposed measure, with improvements in model fit of as much as 45%. Also, it is discovered that winner stocks in a momentum portfolio may have higher market betas than loser stocks.

Book Evaluating Conditional Asset Pricing Models for the German Stock Market

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 2008 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the performance of conditional asset pricing models in explaining the German cross-section of stock returns. Our test assets are portfolios sorted by size and book-to-market as in the paper by Fama and French (1993). Our results show that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved substantially when allowing for time-varying parameters of the stochastic discount factor. A conditional CAPM with the term spread as a conditioning variable is able to explain the cross-section of German stock returns about as well as the Fama-French model. Structural break tests do not indicate parameter instability of the model - whereas the reverse is found for the Fama-French model. Unconditional model specifications however do a better job than conditional ones at capturing time-series predictability of the test portfolio returns.

Book Testing Conditional Asset Pricing Models Using a Markov Chain Monte Carlo Approach

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.

Book Conditional Asset Pricing in International Equity Markets

Download or read book Conditional Asset Pricing in International Equity Markets written by Thanh Huynh and published by . This book was released on 2017 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests conditional asset pricing models in international markets on value, momentum, and the COMBO anomaly of Asness, Moskowitz, and Pedersen (2013) (AMP). We find that incorporating instruments to capture the time variation in risk exposure can significantly reduce the bias in unconditional alpha documented in recent international studies. Particularly, employing the instrumental variables regression approach of Boguth, Carlson, Fisher, and Simutin (2011) to estimate the conditional Fama-French model can successfully explain returns on COMBO portfolios in North America, Europe, Japan, and the global market. Furthermore, instrumenting the global Fama-French model with lagged component betas can reduce the unconditional AMP's 50-50 COMBO alpha by 11%-72%, pointing to the efficacy of this instrumental variable in international markets. Our findings have important implications for international asset pricing theory.

Book Time Varying Conditional Covariances in Tests of Asset Pricing Models

Download or read book Time Varying Conditional Covariances in Tests of Asset Pricing Models written by Campbell R. Harvey and published by . This book was released on 2005 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes tests of asset pricing models that allow for time variation in conditional covariances. The evidence indicates that the conditional covariances do change through time. Estimates of the expected excess return on the market divided by the variance of the market (reward-to-risk ratio) are presented for the Sharpe-Lintner CAPM, as well as a number of tests of the model specification. The patterns of the pricing errors through time suggest the model's inability to capture the dynamic behavior of asset returns. This is the working paper version of my 1989 Journal of Financial Economics article.

Book Testing Asset Pricing Models Using Market Expectations

Download or read book Testing Asset Pricing Models Using Market Expectations written by Jozef Drienko and published by . This book was released on 2013 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the use of market-based expectations to test the CAPM and the conditional CAPM using a generalised method of moments framework. This method is valid under much weaker distributional assumptions and provides the procedure with robustness that commonly employed tests lack. Expected returns are derived from projected price levels of individual securities that are supplied in the form of twelvemonth consensus (median) target price forecasts. The annual forecasts, updated each month, are combined with dividend expectations to calculate the necessary time series of continuous expected returns. As such, we are able to avoid the use of instrumental variable models that, we argue, are likely to suffer from overfitting data concerns. In fact, we find that expected returns estimated from analyst data, while certainly not perfect, provide a better fit in comparison to the existing instrumental variable models.

Book Tests of Conditional Asset Pricing Models

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:

Book Test of Conditional Asset Pricing Models in the Brazilian Stock Market

Download or read book Test of Conditional Asset Pricing Models in the Brazilian Stock Market written by and published by . This book was released on 1997 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Book Contents of Recent Economics Journals

Download or read book Contents of Recent Economics Journals written by and published by . This book was released on 1996-01-12 with total page 376 pages. Available in PDF, EPUB and Kindle. Book excerpt: