Download or read book The International CAPM When Expected Returns are Time Varying written by David T. Ng and published by . This book was released on 2001 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives a dynamic version of Adler and Dumas' (1983) international CAPM when expected returns are time-varying. In addition to the international CAPM factors, intertemporal hedging of future stock returns and future real exchange-rate changes are also priced factors. The model nests several different CAPMs as special cases. The model is estimated using the data on the equity and foreign exchange returns for the United States, Japan, Germany and the United Kingdom. The restrictions of the nested models are tested. While real exchange risk and intertemporal hedging of future stock return play some role, stock market risk remains the most important factor affecting the excess returns.

Download or read book Global Stock Markets written by Wolfgang Drobetz and published by Springer Science & Business Media. This book was released on 2013-06-29 with total page 346 pages. Available in PDF, EPUB and Kindle. Book excerpt: Wolfgang Drobetz provides empirical evidence on the time variation of expected stock returns over the stages of the business cycle.

Download or read book Tests of International CAPM with Time varying Convariances written by Charles Engel and published by . This book was released on 1987 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.

Download or read book CAPM and Time Varying Beta written by Devraj Basu and published by . This book was released on 2019 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The failure of the static-beta CAPM to explain the cross-section of returns on portfolios sorted on firm size, book-to-market ratio, momentum, and even portfolios sorted on past CAPM betas, is well documented. In this paper we show that the model's performance dramatically improves when portfolio betas are allowed to be time-varying functions of (lagged) business cycle variables. We use an approach based on Hansen and Richard (1987) to construct a candidate stochastic discount factor (SDF), using the excess return on the market portfolio as the single factor, scaled by a time-varying coeplusmn;cient. The result is a model in which the conditional factor risk premium is a non-linear function of the business cycle variables. We assess the performance of our model by computing the R2 of the cross-sectional regression of realized on model-implied expected returns, as for example in Jagannathan and Wang (1996). While this is not a formal test of the model's ability to price the assets correctly, it does provide an informative summary statistic that allows us to compare the performance of our scaled model with that of the static version, and also to compare our findings to those of other similar studies.In the post-1980 period, where the static CAPM is known to perform particularly poorly, our scaled model explains around 60% of the cross-sectional variation in returns on beta and book-to-market portfolios, and 87% for momentum portfolios. Moreover, the model captures 70% of the value premium (the return spread between the highest and lowest book-to-market decile portfolios), and 75% of the momentum premium (the spread between the past 'winner' and 'loser' portfolios). Our results thus confirm the crucial importance of time-varying risk premiums in explaining the cross-section of average returns on these sets of portfolios. Moreover, the conditional market risk premium and hence also the betas implied by our model exhibits considerable non-linearity in the business cycle instruments.

Download or read book Time varying Market Integration and Expected Returns in Emerging Markets written by Frank De Jong and published by . This book was released on 2001 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Dynamic Programming and Optimal Control written by Dimitri P. Bertsekas and published by . This book was released on 2005 with total page 543 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The leading and most up-to-date textbook on the far-ranging algorithmic methododogy of Dynamic Programming, which can be used for optimal control, Markovian decision problems, planning and sequential decision making under uncertainty, and discrete/combinatorial optimization. The treatment focuses on basic unifying themes, and conceptual foundations. It illustrates the versatility, power, and generality of the method with many examples and applications from engineering, operations research, and other fields. It also addresses extensively the practical application of the methodology, possibly through the use of approximations, and provides an extensive treatment of the far-reaching methodology of Neuro-Dynamic Programming/Reinforcement Learning. The first volume is oriented towards modeling, conceptualization, and finite-horizon problems, but also includes a substantive introduction to infinite horizon problems that is suitable for classroom use. The second volume is oriented towards mathematical analysis and computation, treats infinite horizon problems extensively, and provides an up-to-date account of approximate large-scale dynamic programming and reinforcement learning. The text contains many illustrations, worked-out examples, and exercises."--Publisher's website.

Download or read book Forecasting Expected Returns in the Financial Markets written by Stephen Satchell and published by Elsevier. This book was released on 2011-04-08 with total page 299 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting returns is as important as forecasting volatility in multiple areas of finance. This topic, essential to practitioners, is also studied by academics. In this new book, Dr Stephen Satchell brings together a collection of leading thinkers and practitioners from around the world who address this complex problem using the latest quantitative techniques. *Forecasting expected returns is an essential aspect of finance and highly technical *The first collection of papers to present new and developing techniques *International authors present both academic and practitioner perspectives

Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.

Download or read book Tests of International CAPM with Time varying Covariances written by Charles Engel and published by . This book was released on 1987 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We perform maximum likelihood estimation of a model of international asset pricing based on CAPM. We test the restrictions imposed by CAPM against a more general asset pricing model. The "betas" in our CAPM vary over time from two sources -- the supplies of the assets (government obligations of France, Germany, Italy, Japan, the U.K. and the U.S.) change over time, and so do the conditional covariances of returns on these assets. We let the covariances change over time as a function of macroeconomic data. We also estimate the model when the covariances follow a multivariate ARCH process. When the covariance of forecast errors are time-varying, we can identify a modified CAFM model with measurement error -- which we also estimate. We find that the model in which the CAPM restrictions are imposed (which involve cross-equation constraints between coefficients and the variances of the residuals) perform much better when variances are not constant over time. Nonetheless, the CAPM model is rejected in favor of the less restricted model of asset pricing

Download or read book A Test of the International CAPM Using Business Cycles Indicators as Instrumental Variables written by Bernard Dumas and published by . This book was released on 1994 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous work by Dumas and Solnik (1993) has shown that a CAPM which incorporates foreign-exchange risk premia (a so-called 'international CAPM') is better capable empirically of explaining the structure of worldwide rates of return than does the classic CAPM. In the specification of that test, moments of rates of return were allowed to vary over time in relation to a number of lagged 'instrumental variables'. Dumas and Solnik used instrumental variables which were endogenous or 'internal' to the financial market (lagged world market portfolio rate of return, dividend yield, bond yield, short-term rate of interest). In the present paper, I use as instruments economic variables which are 'external' to the financial market, such as leading indicators of the business cycles. This is an attempt to explain the behavior of the international stock market on the basis of economically meaningful variables which capture 'the state of the economy'. I find that the leading indicators put together by Stock and Watson (NBER working paper no. 4014, 1992) as predictors of the U.S. business cycle also predict stock returns in the U.S., Germany, Japan and the United Kingdom. These instruments lead again to a rejection of the classic CAPM and no rejection of the international CAPM.

Download or read book The Internationalization of Equity Markets written by Jeffrey A. Frankel and published by University of Chicago Press. This book was released on 2008-04-15 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: This timely volume addresses three important recent trends in the internationalization of United States equity markets: extensive market integration through foreign investment and links among stock prices around the world; increasing securitization as countries such as Japan come to rely more than ever before on markets in equities and bonds at the expense of banks; and the opening of national financial systems of newly industrializing countries to international financial flows and institutions, as governments remove capital controls and other barriers. Eight essays examine such issues as the current extent of international market integration, gains to U.S. investors through international diversification, home-country bias in investing, the role of time and location around the world in stock trading, and the behavior of country funds. Other, long-standing questions about equity markets are also addressed, including market efficiency and the accuracy of models of expected returns, with a particular focus on variances, covariances, and the price of risk according to the Capital Asset Pricing Model.

Download or read book Quantitative Financial Economics written by Keith Cuthbertson and published by John Wiley & Sons. This book was released on 2005-05-05 with total page 736 pages. Available in PDF, EPUB and Kindle. Book excerpt: This new edition of the hugely successful Quantitative Financial Economics has been revised and updated to reflect the most recent theoretical and econometric/empirical advances in the financial markets. It provides an introduction to models of economic behaviour in financial markets, focusing on discrete time series analysis. Emphasis is placed on theory, testing and explaining ‘real-world’ issues. The new edition will include: Updated charts and cases studies. New companion website allowing students to put theory into practice and to test their knowledge through questions and answers. Chapters on Monte Carlo simulation, bootstrapping and market microstructure.

Download or read book Financial Economics and Econometrics written by Nikiforos T. Laopodis and published by Taylor & Francis. This book was released on 2021-12-14 with total page 767 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Economics and Econometrics provides an overview of the core topics in theoretical and empirical finance, with an emphasis on applications and interpreting results. Structured in five parts, the book covers financial data and univariate models; asset returns; interest rates, yields and spreads; volatility and correlation; and corporate finance and policy. Each chapter begins with a theory in financial economics, followed by econometric methodologies which have been used to explore the theory. Next, the chapter presents empirical evidence and discusses seminal papers on the topic. Boxes offer insights on how an idea can be applied to other disciplines such as management, marketing and medicine, showing the relevance of the material beyond finance. Readers are supported with plenty of worked examples and intuitive explanations throughout the book, while key takeaways, ‘test your knowledge’ and ‘test your intuition’ features at the end of each chapter also aid student learning. Digital supplements including PowerPoint slides, computer codes supplements, an Instructor’s Manual and Solutions Manual are available for instructors. This textbook is suitable for upper-level undergraduate and graduate courses on financial economics, financial econometrics, empirical finance and related quantitative areas.

Download or read book Tests of international CAPM with time varying covariances written by Charles Engel and published by . This book was released on 1987 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We perform maximum likelihood estimation of a model of international asset pricing based on CAPM. We test the restrictions imposed by CAPM against a more general asset pricing model. The "betas" in our CAPM vary over time from two sources -- the supplies of the assets (government obligations of France, Germany, Italy, Japan, the U.K. and the U.S.) change over time, and so do the conditional covariances of returns on these assets. We let the covariances change over time as a function of macroeconomic data. We also estimate the model when the covariances follow a multivariate ARCH process. When the covariance of forecast errors are time-varying, we can identify a modified CAFM model with measurement error -- which we also estimate. We find that the model in which the CAPM restrictions are imposed (which involve cross-equation constraints between coefficients and the variances of the residuals) perform much better when variances are not constant over time. Nonetheless, the CAPM model is rejected in favor of the less restricted model of asset pricing.

Download or read book Tests of International CAPM with Time Varying Covariances written by Charles M. Engel and published by . This book was released on 2008 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: We perform maximum likelihood estimation of a model of international asset pricing based on CAPM. We test the restrictions imposed by CAPM against a more general asset pricing model. The quot;betasquot; in our CAPM vary over time from two sources -- the supplies of the assets (government obligations of France, Germany, Italy, Japan, the U.K. and the U.S.) change over time, and so do the conditional covariances of returns on these assets. We let the covariances change over time as a function of macroeconomic data. We also estimate the model when the covariances follow a multivariate ARCH process. When the covariance of forecast errors are time-varying, we can identify a modified CAFM model with measurement error -- which we also estimate. We find that the model in which the CAPM restrictions are imposed (which involve cross-equation constraints between coefficients and the variances of the residuals) perform much better when variances are not constant over time. Nonetheless, the CAPM model is rejected in favor of the less restricted model of asset pricing.

Download or read book Financial Markets Theory written by Emilio Barucci and published by Springer. This book was released on 2017-06-08 with total page 843 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work, now in a thoroughly revised second edition, presents the economic foundations of financial markets theory from a mathematically rigorous standpoint and offers a self-contained critical discussion based on empirical results. It is the only textbook on the subject to include more than two hundred exercises, with detailed solutions to selected exercises. Financial Markets Theory covers classical asset pricing theory in great detail, including utility theory, equilibrium theory, portfolio selection, mean-variance portfolio theory, CAPM, CCAPM, APT, and the Modigliani-Miller theorem. Starting from an analysis of the empirical evidence on the theory, the authors provide a discussion of the relevant literature, pointing out the main advances in classical asset pricing theory and the new approaches designed to address asset pricing puzzles and open problems (e.g., behavioral finance). Later chapters in the book contain more advanced material, including on the role of information in financial markets, non-classical preferences, noise traders and market microstructure. This textbook is aimed at graduate students in mathematical finance and financial economics, but also serves as a useful reference for practitioners working in insurance, banking, investment funds and financial consultancy. Introducing necessary tools from microeconomic theory, this book is highly accessible and completely self-contained. Advance praise for the second edition: "Financial Markets Theory is comprehensive, rigorous, and yet highly accessible. With their second edition, Barucci and Fontana have set an even higher standard!"Darrell Duffie, Dean Witter Distinguished Professor of Finance, Graduate School of Business, Stanford University "This comprehensive book is a great self-contained source for studying most major theoretical aspects of financial economics. What makes the book particularly useful is that it provides a lot of intuition, detailed discussions of empirical implications, a very thorough survey of the related literature, and many completely solved exercises. The second edition covers more ground and provides many more proofs, and it will be a handy addition to the library of every student or researcher in the field."Jaksa Cvitanic, Richard N. Merkin Professor of Mathematical Finance, Caltech "The second edition of Financial Markets Theory by Barucci and Fontana is a superb achievement that knits together all aspects of modern finance theory, including financial markets microstructure, in a consistent and self-contained framework. Many exercises, together with their detailed solutions, make this book indispensable for serious students in finance."Michel Crouhy, Head of Research and Development, NATIXIS