Download or read book Arbitrage Pricing Theory Using Macroeconomic Risk Factors written by Juan José Cruces and published by . This book was released on 1988 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Macroeconomic Risk and Asset Pricing written by John Ammer and published by . This book was released on 1993 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Arbitrage Pricing Theory Factor Selection Using Reversible Jump Markov Chain Monte Carlo written by Max Büchler and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The study focusses on the selection of factors for the Arbitrage Pricing Theory. The Reversible Jump Markov-Chain Monte Carlo method is applied to identify factors which explain returns of stock portfolios. For the different portfolios, between two and five factors are identified which signifcantly explain the time series variation. In the cross sectional regression, the factors identified relevant for the pricing were macroeconomic risk factors, except for the the Fama-French high-minus-low factor.
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 2009-02-27 with total page 76 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 Schloß Reichartshausen Oestrich-Winkel, 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 briefly reviewed, the question of APT’s empirical evidence and of its risk factors is attempted to be answered. In Section 4, arbitrage theory is linked to traditional as well as to innovative valuation methods. It includes a discussion of the DCF method, arbitrage valuation and previews an option pricing approach to security valuation. Finally, Section 5 concludes the paper with some practical considerations from the investment community.
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 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 Macroeconomic Forces and Arbitrage Pricing Theory written by Jordan French and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests five macroeconomic variables that have been both theorized to affect stock returns and been proven to in past empirical research. Those variables are risk premium, industrial production, term structure, expected inflation, and unexpected inflation. The variables are retested for their statistical significance using four years of monthly contemporary data for six different countries (developed and developing). The United States is used as a benchmark, in addition to the ASEAN-5 (Singapore, Thailand, Philippines, Malaysia, and Indonesia). This study finds that risk premium and industrial production were significant over the sample, but term structure, expected inflation, and unexpected inflation were not significant in explaining domestic market returns. Furthermore, principal component regressions outperformed cross-sectional, with factor analysis as the least statistically significant model. For the six countries tested, the arbitrage pricing theory was also found to be a less robust pricing tool than the capital asset pricing 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 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 Asset Pricing written by Bing Cheng and published by World Scientific. This book was released on 2008 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modern asset pricing models play a central role in finance and economic theory and applications. This book introduces a structural theory to evaluate these asset pricing models and throws light on the existence of Equity Premium Puzzle. Based on the structural theory, some algebraic (valuation-preserving) operations are developed in asset spaces and pricing kernel spaces. This has a very important implication leading to practical guidance in portfolio management and asset allocation in the global financial industry. The book also covers topics, such as the role of over-confidence in asset pricing modeling, relationship of the portfolio insurance with option and consumption-based asset pricing models, etc.
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 A Macroeconomic Factor Test of the Arbitrage Pricing Theory written by Stephen Peter Dukas and published by . This book was released on 1990 with total page 254 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Macroeconomic Risks and Characteristic Based Factor Models written by Söhnke M. Bartram and published by . This book was released on 2019 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that book-to-market, size, and momentum capture cross-sectional variation in exposures to a broad set of macroeconomic factors identified in the prior literature as potentially important for pricing equities. The factors considered include innovations in economic growth expectations, inflation, the aggregate survival probability, the term structure of interest rates, and the exchange rate. Factor mimicking portfolios constructed on the basis of book-to-market, size, and momentum therefore serve as proxy composite macroeconomic risk factors. Conditional and unconditional cross-sectional asset pricing tests indicate that most of the macroeconomic factors are priced. The performance of an asset pricing model based on the macroeconomic factors is comparable to the performance of the Fama and French (1992, 1993) model. However, the momentum factor is found to contain incremental information for asset pricing.
Download or read book Finance written by John Eatwell and published by Palgrave Macmillan. This book was released on 1989-11-01 with total page 278 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is an excerpt from the 4-volume dictionary of economics, a reference book which aims to define the subject of economics today. 1300 subject entries in the complete work cover the broad themes of economic theory. This extract concentrates on finance.
Download or read book Empirical Examination of the Arbitrage Pricing Theory written by Yasushi Hamao and published by . This book was released on 1988 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Empirical Examination of the Arbitrage Pricing Theory written by Yasushi Hamao and published by . This book was released on 1987 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Arbitrage Pricing Theory for Idiosyncratic Variance Factors written by Eric Renault and published by . This book was released on 2019 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an Arbitrage Pricing Theory framework extension to study the pricing of squared returns/volatilities. We analyze the interplay between factors at the return level and those in idiosyncratic variances. We confirm the presence of a common idiosyncratic variance factor, but do not find evidence that this represents a missing risk factor at the (linear) return level. Thereby, we consistently identify idiosyncratic returns. The price of the idiosyncratic variance factor identified by squared returns is small relative to the price of market variance risk. The quadratic pricing kernels induced by our model are in line with standard economic intuition.
