Capital Asset Market Equilibrium With Liquidity Risk Portfolio Constraints And Asset Price Bubbles PDF Download
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Author | : Robert A. Jarrow |
Publisher | : |
Total Pages | : 38 |
Release | : 2018 |
Genre | : |
ISBN | : |
Download Capital Asset Market Equilibrium With Liquidity Risk, Portfolio Constraints, and Asset Price Bubbles Book in PDF, ePub and Kindle
This paper derives an equilibrium asset pricing model with endogenous liquidity risk, portfolio constraints, and asset price bubbles. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Asset price bubbles are generated by the existence of portfolio constraints, e.g. short sale prohibitions and margin requirements. Under a restrictive set of assumptions, we prove a unique equilibrium price process exists for our economy. We characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including both liquidity risk and asset price bubbles. This yields a generalized intertemporal and consumption CAPM for our economy. In contrast to the traditional models without liquidity risk or asset price bubbles, there are additional systematic liquidity risk and asset price bubble factors which are related to the stock return's covariation with liquidity risk and asset price bubbles.
Author | : Robert A. Jarrow |
Publisher | : |
Total Pages | : 40 |
Release | : 2018 |
Genre | : |
ISBN | : |
Download Capital Asset Market Equilibrium With Liquidity Risk, Trading Constraints, and Asset Price Bubbles Book in PDF, ePub and Kindle
This paper derives an equilibrium asset pricing model with endogenous liquidity risk, trading constraints, and asset price bubbles. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Asset price bubbles are generated by the existence of trading constraints, e.g. short sale prohibitions and margin requirements. Under a strong set of assumptions, we prove a unique equilibrium price process exists for our economy. We characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including both liquidity risk and asset price bubbles. This yields a generalized intertemporal and consumption CAPM for our economy. In contrast to the traditional models without liquidity risk or asset price bubbles, there are additional systematic liquidity risk and asset price bubble factors which are related to the stock return's covariation with liquidity risk and asset price bubbles.
Author | : Robert A. Jarrow |
Publisher | : |
Total Pages | : 48 |
Release | : 2019 |
Genre | : |
ISBN | : |
Download Asset Price Bubbles, Market Liquidity and Systemic Risk Book in PDF, ePub and Kindle
This paper studies an equilibrium model with heterogeneous agents, asset price bubbles, and trading constraints. Market liquidity is modeled as a stochastic quantity impact from trading on the price. Bubbles are larger in liquid markets and when trading constraints are more binding. Systemic risk is defined as an unanticipated shock that results in the nonexistence of an equilibrium in the economy. A realization of systemic risk results in a significant loss of wealth. Systemic risk increases as: (i) the fraction of agents seeing an asset price bubble increases, (ii) as the market becomes more illiquid, and (iii) as trading constraints are relaxed.
Author | : Yakov Amihud |
Publisher | : Cambridge University Press |
Total Pages | : 293 |
Release | : 2012-11-12 |
Genre | : Business & Economics |
ISBN | : 1139560158 |
Download Market Liquidity Book in PDF, ePub and Kindle
This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large position. Liquidity risk is higher if a security becomes more illiquid when it needs to be traded in the future, which will raise trading cost. The book shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation. Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity services. When these become constrained, there is a liquidity crisis which leads to downward price and liquidity spiral. Overall, the volume demonstrates the important role of liquidity in asset pricing.
Author | : Yakov Amihud |
Publisher | : Now Publishers Inc |
Total Pages | : 109 |
Release | : 2006 |
Genre | : Business & Economics |
ISBN | : 1933019123 |
Download Liquidity and Asset Prices Book in PDF, ePub and Kindle
Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Author | : James W. Kolari |
Publisher | : Springer Nature |
Total Pages | : 326 |
Release | : 2021-03-01 |
Genre | : Business & Economics |
ISBN | : 3030651975 |
Download A New Model of Capital Asset Prices Book in PDF, ePub and Kindle
This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.
Author | : Günter Bamberg |
Publisher | : Springer Science & Business Media |
Total Pages | : 233 |
Release | : 2012-12-06 |
Genre | : Business & Economics |
ISBN | : 3642709958 |
Download Capital Market Equilibria Book in PDF, ePub and Kindle
Author | : Emilio Barucci |
Publisher | : Springer Science & Business Media |
Total Pages | : 473 |
Release | : 2012-12-06 |
Genre | : Business & Economics |
ISBN | : 1447100891 |
Download Financial Markets Theory Book in PDF, ePub and Kindle
A presentation of classical asset pricing theory, this textbook is the only one to address the economic foundations of financial markets theory from a mathematically rigorous standpoint and to offer a self-contained critical discussion based on empirical results. Tools for understanding the economic analysis are provided, and mathematical models are presented in discrete time/finite state space for simplicity. Examples and exercises included.
Author | : Robert A. Jarrow |
Publisher | : |
Total Pages | : 29 |
Release | : 2017 |
Genre | : |
ISBN | : |
Download An Equilibrium Capital Asset Pricing Model in Markets with Price Jumps and Price Bubbles Book in PDF, ePub and Kindle
This paper derives an equilibrium capital asset pricing model (CAPM) in a market where asset prices can exhibit price jumps and price bubbles. We derive a generalized intertertemporal CAPM and consumption CAPM for these markets. The derived risk return relation differs from the classical results only in the characterization of the state price density, which depends on the existence of price bubbles, and in the number and quantity of systematic risk factors.
Author | : Robert A. Jarrow |
Publisher | : |
Total Pages | : 36 |
Release | : 2017 |
Genre | : |
ISBN | : |
Download Asset Market Equilibrium with Liquidity Risk Book in PDF, ePub and Kindle
This paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists for our economy and we characterize the market's state price density, which enables the derivation of the risk-return relation for the stock's expected return including liquidity risk. In contrast to the traditional models without liquidity risk, there is an additional systematic liquidity risk factor which is related to the stock return's covariation with the market's stochastic liquidity cost. Traditional transaction costs are a special case of our formulation.