Download or read book The Application of Arbitrage Pricing Theory Factors and Macroeconomic Variables to Explain Security Returns in Emerging Equity Markets written by Rohit Selvaratnam and published by . This book was released on 1994 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book New Methods for the Arbitrage Pricing Theory and the Present Value Model written by Jianping Mei and published by World Scientific. This book was released on 1994 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book consists of two essays on new approaches for the Arbitrage Pricing Theory and the Present Value Model, and one essay on cross-sectional correlations in panel data. The new approaches are designed to study a large number of securities over time. They can be employed by security analysts to discover market anomalies without assuming observable factors or constant risk premium. The book shows how these two approaches can be used to determine how many systematic factors affect the U.S. stock market.

Download or read book The Arbitrage Pricing Theory as an Approach to Capital Asset Valuation written by Christian Koch and published by GRIN Verlag. This book was released on 2009-03 with total page 81 pages. Available in PDF, EPUB and Kindle. Book excerpt: Diploma Thesis from the year 1996 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, European Business School - International University Schlo Reichartshausen Oestrich-Winkel, 160 entries in the bibliography, language: English, abstract: A "few surprises" could be the trivial answer of the Arbitrage Pricing Theory if asked for the major determinants of stock returns. The APT was developed as a traceable framework of the main principles of capital asset pricing in financial markets. It investigates the causes underlying one of the most important fields in financial economics, namely the relationship between risk and return. The APT provides a thorough understanding of the nature and origins of risk inherent in financial assets and how capital markets reward an investor for bearing risk. Its fundamental intuition is the absence of arbitrage which is, indeed, central to finance and which has been used in virtually all areas of financial study. Since its introduction two decades ago, the APT has been subject to extensive theoretical as well as empirical research. By now, the arbitrage theory is well established in both respects and has enlightened our perception of capital markets. This paper aims to present the APT as an appropriate instrument of capital asset pricing and to link its principles to the valuation of risky income streams. The objective is also to provide an overview of the state of art of APT in the context of alternative capital market theories. For this purpose, Section 2 describes the basic concepts of the traditional asset pricing model, the CAPM, and indicates differences to arbitrage theory. Section 3 constitutes the main part of this paper introducing a derivation of the APT. Emphasis is laid on principles rather than on rigorous proof. The intuition of the pricing formula and its consistency with the state space preference theory are discussed. Important contributions to the APT are classified and br

Download or read book The Application of the Arbitrage Pricing Theory to Price Stocks at the Nairobi Stock Exchange written by William Ambaka Akwimbi and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study applies the multi-index (APT) to explore the relationship of NSE companies stock returns to selected market and industrial variables. In this study I have used a model i.e. the relative pricing (APT) model, to explain the expected returns at the NSE. Use of indices as well as unanticipated changes in economic variables as factors driving security returns are employed. Regression results on the variables are mixed; in particular, interest on loans and interest on savings are positively related to NSE stock returns, but the relationships are not significant. The results of this paper suggest that a multi-index APT using selected economic and industrial variables provides additional power in explaining the variability of NSE stock returns over a single index model using the market index alone. It is therefore noted that the inclusion of economic variables to a large extent improves the explanation of the cross-section of expected returns.

Download or read book An Empirical Test of the Arbitrage Pricing Theory written by Sungmoon Lee and published by . This book was released on 1990 with total page 252 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Institutional Investors and Asset Pricing in Emerging Markets written by Ms.Elaine Karen Buckberg and published by International Monetary Fund. This book was released on 1996-01-01 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a new theory of asset pricing intended to address why other developing country equity markets responded so strongly to the Mexican devaluation, while the world’s major stock markets were unmoved. This phenomenon can be explained if investors follow a two-step portfolio allocation process, first determining what share of their portfolio to invest in developing countries, then allocating those funds across the emerging markets. For 12 of 13 markets studied, the one-factor CAPM is rejected in favor of a two-factor asset pricing model, including both a broad emerging markets portfolio and the global market portfolio.

Download or read book An Empirical Examination of the Robustness of Arbitrage Factors written by Randall Barry Howard and published by . This book was released on 1997 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: After thirty years of vigorous research, there is still little agreement in the field of asset pricing theory. Shanken and Smith (1996) sum up the vast amount of empirical research on asset pricing models by saying, "Although we have learned much about the cross sectional and time series properties of returns and have developed sophisticated statistical methods to increase the power of the tests, numerous unanswered questions remain." Two of the most fundamental, yet unanswered, questions are: How many factors are there? and What are those factors? The two primary equilibrium, expected return models are the Capital Asset Pricing Model (CAPM), developed almost simultaneously by Sharpe (1964), Lintner (1965), and Mossin (1966), and the Arbitrage Pricing Theory (APT), introduced by Ross (1976, 1977). The CAPM is a one factor model that states that the equilibrium rate of return on any asset is a linear function of the asset's covariance with the market portfolio. The APT, on the other hand, is a multifactor model.

Download or read book Underspecification in the Macroeconomic Arbitrage Pricing Theory APT Linear Factor Model and the Role of the Residual Market Factor written by Jan Jakub Szczygielski and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The linear factor model is a building block of the Arbitrage Pricing Theory (APT). Macroeconomic factors may be used in linear factor models to proxy for the pervasive influences in returns. However, as the true return generating process is unobservable, macroeconomic data is either inaccurate or unavailable and because of the principle of parsimony, the linear factor model is likely to suffer from factor omission and consequent underspecification. Underspecification may adversely affect the interpretation of results, introduce coefficient bias, result in an upward bias in the residual variance and adversely affect predictive ability. The diagonality assumption that underlies the APT linear factor model will also be violated. Consequently, underspecification may pose a challenge to the general validity and interpretation of the linear factor model and the APT model. A widely applied solution to omitted factor bias in APT literature is the Burmeister and Wall (1986) residual market factor, hypothesised to fulfil the role of a wide-ranging proxy for omitted factors. This factor is derived from a broad market aggregate by excluding the influence of other factors that feature in a given linear factor model. This study sets out to determine whether the use of a conventional residual market factor derived from a domestic market aggregate adequately resolves underspecification. This study also considers the impact of underspecification on the linear factor model. The role of a second residual market factor derived from a widely used global market index, the MSCI World Market Index, in resolving factor omission is also considered. A second residual market factor that is orthogonal by contribution to the factor set in the linear factor model should be irrelevant if a conventional residual market factor is an adequate proxy for omitted factors. Consequently, the second residual market factor in this study also fulfils the function of a test of the adequacy of the conventional residual market factor. The approach in this study is comparative; three reduced form models are juxtaposed against a benchmark model and each other. The benchmark model incorporates a macroeconomic factor set, two residual market factors and a factor analytic augmentation as proxies for any remaining unobserved and omitted factors. Each specification is estimated using maximum likelihood (ML) estimation. Conditional variance is modelled as an ARCH(p) or GARCH(p, q) process to permit the structure of conditional variance to enter coefficient estimates and to provide insight into the conditional variance structure of the residuals. It is hypothesised that if factor omission has no impact on representations of the linear factor model and if the residual market factor is an effective and adequate proxy for omitted factors, then a model that comprises macroeconomic factors and a residual market factor should be comparable to the benchmark model in terms of results, general inferences and other aspects. This study finds that a linear factor model incorporating only macroeconomic factors performs poorly. The significance of factors is understated and the model is misidentified. Standard errors and residual variance are inflated, coefficients are biased and predictive and explanatory performance is poor. Significant deviations from the true return generating process are observed and the diagonality assumption is violated. The incorporation of a single residual market factor improves such a specification although there is still evidence of significant omitted factor bias. Violations of the diagonality assumption continue to persist but are not as widespread as for the specification that solely employs macroeconomic factors. The inclusion of a second residual market factor does not significantly alleviate the symptoms of underspecification and this factor is significant in a number of instances suggesting that the residual market factor does not capture all omitted influences by itself. Researchers of the APT and practitioners are encouraged to take note of these findings to avoid misinterpreting the results of macroeconomic linear factor models. The linear factor model is a complex construct and the application of a widely used approach in APT literature to resolve factor omission may not be adequate. This can adversely impact studies focusing on the linear factor model and equilibrium pricing within the APT and studies that apply macroeconomic linear factor models motivated by the APT.

Download or read book A Measure of Stock Market Integration for Developed and Emerging Markets written by Robert A. Korajczyk and published by World Bank Publications. This book was released on 1995 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book An Exact Arbitrage Pricing Model of Capital Assets written by Jin-Chuan Duan and published by . This book was released on 1986 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Modern Portfolio Theory the Capital Asset Pricing Model and Arbitrage Pricing Theory written by Diana R. Harrington and published by Prentice Hall. This book was released on 1987 with total page 242 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Security Market Imperfections in Worldwide Equity Markets written by Donald B. Keim and published by Cambridge University Press. This book was released on 2000-03-13 with total page 576 pages. Available in PDF, EPUB and Kindle. Book excerpt: The study of security market imperfections, namely the predictability of equity stock returns, is one of the fundamental research areas in financial modelling. These anomalies, which are not consistent with existing theories, concern the relation between stock returns and variables, such as firm size and earnings-to-price ratios, and seasonal effects, such as January and turn-of-the-month. This book provides the most complete and current account of work in the area. Leading academics and investment researchers have combined to produce a comprehensive coverage of the subject, including both cross-sectional and time series analyses, as well as discussing the measurement of risk and prediction models that have been used by institutional investors. The studies cover many worldwide markets including the US, Japan, Asia, and Europe. The book will be invaluable for courses in financial engineering, investment and portfolio management, and as a reference for investment professionals seeking an up-to-date source on return predictability.

Download or read book The Arbitrage Model of Security Returns written by Bradford Jordan and published by . This book was released on 2019-05-31 with total page 154 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Over the last two decades, the Capital Asset Pricing Model (CAPM) has emerged as the dominant theoretical basis for much of the research in financial economics. Because direct observation of the market portfolio is a pre-requisite for any valid application of the CAPM, it cannot serve as a theoretical basis for empirical research in securities markets. The Arbitrage Pricing Theory (APT) is a theoretical alternative to the CAPM in which the market portfolio plays no particular role. The purpose of this research is to develop and test a model of the security return generating process based on the APT. Particular emphasis is placed on two facets of the proposed arbitrage model. First, the central prediction of the APT is an absence of arbitrage opportunities, the empirical identification of which would lead to a rejection of the theory. Thus, the first use to which the model is put is the examination of abnormal performance for the securities individually and jointly. The second application involves an event study comparison of the arbitrage model and a popular variant of the market model. The objective of this comparison is to establish the stability and usefulness of the arbitrage model against a known benchmark. In light of the growing list of empirical anomalies associated with the market model and the difficulties in application of the CAPM, an empirically tractable and theoretically sound model of security returns would be a significant step forward in financial research. The data used in the study are daily returns for individual securities from the CRSP file and cover the period 1962 through 1979. The results indicate substantial support for the APT and the arbitrage model. Significant arbitrage opportunities are found to occur in less than 1% of the individual cases, and the hypothesis of jointly zero abnormal performance cannot be rejected in any case. In the event study comparison, the arbitrage model was found to work at least as well as the market model in all cases and was markedly superior in accounting for the January effect. Dissertation Discovery Company and University of Florida are dedicated to making scholarly works more discoverable and accessible throughout the world. This dissertation, "The Arbitrage Model of Security Returns" by Bradford Dunson. Jordan, was obtained from University of Florida and is being sold with permission from the author. A digital copy of this work may also be found in the university's institutional repository, IR@UF. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation.

Download or read book Financial Securities written by Blaise Allaz Bernard Dumas and published by Springer. This book was released on 2013-12-19 with total page 385 pages. Available in PDF, EPUB and Kindle. Book excerpt: Finance is an area of business practice that has been deeply influenced by theoretical developments. This book provides the basic theoretical foundations necessary to understand how three broad classes of assets - stocks, options and bonds - are valued on financial markets, while developing the crucial concepts of market equilibrium and arbitrage. The analysis is rigorous, yet successfully bridges the gap between mathematical and non-mathematical approaches to provide a book which will be of interest to both academics and practitioners.

Download or read book The Econometrics of Financial Markets written by John Y. Campbell and published by Princeton University Press. This book was released on 2012-06-28 with total page 630 pages. Available in PDF, EPUB and Kindle. Book excerpt: The past twenty years have seen an extraordinary growth in the use of quantitative methods in financial markets. Finance professionals now routinely use sophisticated statistical techniques in portfolio management, proprietary trading, risk management, financial consulting, and securities regulation. This graduate-level textbook is intended for PhD students, advanced MBA students, and industry professionals interested in the econometrics of financial modeling. The book covers the entire spectrum of empirical finance, including: the predictability of asset returns, tests of the Random Walk Hypothesis, the microstructure of securities markets, event analysis, the Capital Asset Pricing Model and the Arbitrage Pricing Theory, the term structure of interest rates, dynamic models of economic equilibrium, and nonlinear financial models such as ARCH, neural networks, statistical fractals, and chaos theory. Each chapter develops statistical techniques within the context of a particular financial application. This exciting new text contains a unique and accessible combination of theory and practice, bringing state-of-the-art statistical techniques to the forefront of financial applications. Each chapter also includes a discussion of recent empirical evidence, for example, the rejection of the Random Walk Hypothesis, as well as problems designed to help readers incorporate what they have read into their own applications.

Download or read book Market Consistent Prices written by Pablo Koch-Medina and published by Springer Nature. This book was released on 2020-07-16 with total page 448 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage Theory provides the foundation for the pricing of financial derivatives and has become indispensable in both financial theory and financial practice. This textbook offers a rigorous and comprehensive introduction to the mathematics of arbitrage pricing in a discrete-time, finite-state economy in which a finite number of securities are traded. In a first step, various versions of the Fundamental Theorem of Asset Pricing, i.e., characterizations of when a market does not admit arbitrage opportunities, are proved. The book then focuses on incomplete markets where the main concern is to obtain a precise description of the set of “market-consistent” prices for nontraded financial contracts, i.e. the set of prices at which such contracts could be transacted between rational agents. Both European-type and American-type contracts are considered. A distinguishing feature of this book is its emphasis on market-consistent prices and a systematic description of pricing rules, also at intermediate dates. The benefits of this approach are most evident in the treatment of American options, which is novel in terms of both the presentation and the scope, while also presenting new results. The focus on discrete-time, finite-state models makes it possible to cover all relevant topics while requiring only a moderate mathematical background on the part of the reader. The book will appeal to mathematical finance and financial economics students seeking an elementary but rigorous introduction to the subject; mathematics and physics students looking for an opportunity to get acquainted with a modern applied topic; and mathematicians, physicists and quantitatively inclined economists working or planning to work in the financial industry.

Download or read book A Time Series Investigation of the Arbitrage Pricing Theory written by Marilyn Katherine Wiley and published by . This book was released on 1993 with total page 520 pages. Available in PDF, EPUB and Kindle. Book excerpt: