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Author | : Jianfeng Yu |
Publisher | : |
Total Pages | : 47 |
Release | : 2012 |
Genre | : |
ISBN | : |
Download Using Long-Run Consumption-Return Correlations to Test Asset Pricing Models Book in PDF, ePub and Kindle
This paper examines a new set of implications for existing asset pricing models regarding the correlation between returns and consumption growth over both the short run and the long run. The fi ndings suggest that external habit formation models face a challenge in producing two robust facts in aggregate data, namely, that stock market returns lead consumption growth, and that the correlation between returns and consumption growth is higher at low frequencies. To reconcile these facts with a consumption-based model, I demonstrate the need for focusing on models that contain a forward looking consumption component, i.e., models that allow for both trend and cyclical fluctuations in consumption, and that link returns to cyclical fluctuations in consumption. Long-run risk models provide examples of models that contain this consumption component.
Author | : George M. Constantinides |
Publisher | : |
Total Pages | : 76 |
Release | : 2011 |
Genre | : |
ISBN | : |
Download Asset Pricing Tests with Long Run Risks in Consumption Growth Book in PDF, ePub and Kindle
A novel methodology in testing the long-run risks model of Bansal and Yaron (2004) is presented based on the observation that, under the null, the potentially latent state variables, long-run risk and the conditional variance of its innovation, are known affine functions of the observable market-wide price-dividend ratio and risk free rate. In linear forecasting regressions of consumption growth and returns by the price-dividend ratio and risk free rate, the model implies much higher forecastability than what is observed in the data over 1931-2009. The co-integrated variant of the model by Bansal, Gallant, and Tauchen (2007), also implies much higher forecastability of returns than what is observed in the data. Finally, we reject the models' implications in jointly pricing the cross-section of returns and fitting the unconditional time series moments of consumption and dividend growth. The results suggest that either some important state variable is missing or that the models should be generalized in a way that the lagged price-dividend ratio and risk free enter the regressions in a non-linear fashion.
Author | : Wayne Ferson |
Publisher | : MIT Press |
Total Pages | : 497 |
Release | : 2019-03-26 |
Genre | : Business & Economics |
ISBN | : 0262351307 |
Download Empirical Asset Pricing Book in PDF, ePub and Kindle
An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
Author | : John H. Cochrane |
Publisher | : Now Publishers Inc |
Total Pages | : 117 |
Release | : 2005 |
Genre | : Business & Economics |
ISBN | : 1933019158 |
Download Financial Markets and the Real Economy Book in PDF, ePub and Kindle
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Author | : Robert A. Jarrow |
Publisher | : |
Total Pages | : 472 |
Release | : 1998 |
Genre | : Derivative securities |
ISBN | : |
Download Volatility Book in PDF, ePub and Kindle
Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
Author | : Costis Skiadas |
Publisher | : Princeton University Press |
Total Pages | : 363 |
Release | : 2009-02-09 |
Genre | : Business & Economics |
ISBN | : 1400830141 |
Download Asset Pricing Theory Book in PDF, ePub and Kindle
Asset Pricing Theory is an advanced textbook for doctoral students and researchers that offers a modern introduction to the theoretical and methodological foundations of competitive asset pricing. Costis Skiadas develops in depth the fundamentals of arbitrage pricing, mean-variance analysis, equilibrium pricing, and optimal consumption/portfolio choice in discrete settings, but with emphasis on geometric and martingale methods that facilitate an effortless transition to the more advanced continuous-time theory. Among the book's many innovations are its use of recursive utility as the benchmark representation of dynamic preferences, and an associated theory of equilibrium pricing and optimal portfolio choice that goes beyond the existing literature. Asset Pricing Theory is complete with extensive exercises at the end of every chapter and comprehensive mathematical appendixes, making this book a self-contained resource for graduate students and academic researchers, as well as mathematically sophisticated practitioners seeking a deeper understanding of concepts and methods on which practical models are built. Covers in depth the modern theoretical foundations of competitive asset pricing and consumption/portfolio choice Uses recursive utility as the benchmark preference representation in dynamic settings Sets the foundations for advanced modeling using geometric arguments and martingale methodology Features self-contained mathematical appendixes Includes extensive end-of-chapter exercises
Author | : Ziemowit Konrad Bednarek |
Publisher | : |
Total Pages | : 368 |
Release | : 2010 |
Genre | : |
ISBN | : |
Download Essays in Technology Diffusion and Asset Pricing Book in PDF, ePub and Kindle
First chapter of this thesis finds a new consumption growth predictor linked to macroeconomic fundamentals: the technology gap, the dierence between potential and actual productivity of capital. I construct a representative firm business cycle model, in which the technology gap generates specic patterns of short- and long-run consumption growth, and consumption growth volatility. Intuitively, a high technology gap acts as an economic shock that increases consumption in the long term due to a higher future productivity level. I use quality-adjusted price indices of durable investment goods to create a proxy for the technology gap. Consistent with the model, I find empirical evidence that a high technology gap predicts: (i) strong consumption growth at longer horizons, (ii) high consumption growth volatility, and (iii) high risk-free rate. Second chapter demonstrates the relationship between research and development expenditure, and firm productivity. I construct a model which implies that firm-level R & D optimal policy should be dependent on ex-ante productivity. Firms ex-ante further from the frontier optimally invest more in R & D. Ex-post productivity depends on the amount of R & D investment and the match between new technology and existing production factors. Firms investing more in R & D are ex-post on average closer to the frontier, controlling for theoretically motivated endogeneity. I present empirical evidence supporting the model. Using data envelopment, I construct a measure of firm-level distance from industry-wide productivity frontier. On average, a 1% larger distance from the frontier causes a 0.5% increase in R & D intensity next quarter. R & D activity in turn predicts high stock return volatility. Third chapter tests the existing durable consumption-based asset pricing model of Yogo (2006). Consumption risk is measured by the covariance between asset returns and future durable consumption growth, rather than contemporaneous growth, as in the original model. I present empirical evidence that excess returns on Fama-French portfolios are correlated more with future than contemporaneous durable consumption growth. I transform the original Euler equations of the model to use information about the future consumption growth. As its correlation with returns is higher, the estimate of risk aversion from the model decreases substantially compared with Yogo (2006). I also find that the altered consumption risk measure increases the explanatory power of the model. I approximate the original model and show that it can be estimated in the simple OLS framework. Cross-sectional R square is highest when the consumption growth is sampled over six to eight quarters ahead. This result is robust to dierent sets of test assets.
Author | : Fernando Restoy |
Publisher | : |
Total Pages | : 32 |
Release | : 1998 |
Genre | : Capital assets pricing model |
ISBN | : |
Download Can Fundamentals Explain Cross-country Correlations of Asset Returns Book in PDF, ePub and Kindle
Author | : Jiun-Lin Chen |
Publisher | : |
Total Pages | : 32 |
Release | : 2018 |
Genre | : |
ISBN | : |
Download The Predictability Implied by Consumption-Based Asset Pricing Models Book in PDF, ePub and Kindle
The consumption-based models have a lack of predictive power for explaining variability of stock returns. This paper examines two well-known models, Campbell and Cochrane (1999)'s habit model and Bansal and Yaron (2004)'s long-run risks model, to see whether they produce a significant power of return predictability. For the habit model, empirical tests reveal that the state variable, the surplus consumption ratio, explains counter-cyclical time-varying expected returns. The long-run risks model also proves to explain that main sources of volatility in price-dividend ratio are a persistent and predictable consumption growth rate and fluctuating economic uncertainty. The models are also tested by following the work of Kirby (1998) whether they can explain the observed return predictability. Both models fail to generate any significant predictive power. The habit model is relatively strong in volatility, which implies that variation in expected excess return is largely attributable to the time-varying risk aversion.
Author | : Halbert White |
Publisher | : Oxford University Press, USA |
Total Pages | : 512 |
Release | : 1999 |
Genre | : Business & Economics |
ISBN | : 9780198296836 |
Download Cointegration, Causality, and Forecasting Book in PDF, ePub and Kindle
A collection of essays in honour of Clive Granger. The chapters are by some of the world's leading econometricians, all of whom have collaborated with and/or studied with both) Clive Granger. Central themes of Granger's work are reflected in the book with attention to tests for unit roots and cointegration, tests of misspecification, forecasting models and forecast evaluation, non-linear and non-parametric econometric techniques, and overall, a careful blend of practical empirical work and strong theory. The book shows the scope of Granger's research and the range of the profession that has been influenced by his work.