Are Asset Demand Functions Determined by CAPM
Author | : |
Publisher | : |
Total Pages | : 26 |
Release | : 2000 |
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ISBN | : |
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Author | : |
Publisher | : |
Total Pages | : 26 |
Release | : 2000 |
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Author | : Jeffrey A. Frankel |
Publisher | : |
Total Pages | : 26 |
Release | : 1983 |
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ISBN | : |
Author | : Jeffrey A. Frankel |
Publisher | : |
Total Pages | : 38 |
Release | : 1982 |
Genre | : Capital assets pricing model |
ISBN | : |
International asset demands are functions of expected returns.Optimal portfolio theory tells us that the coefficients in this relationship depend on the variance-covariance matrix of real returns.But previous estimates of the optimal portfolio (1) assume expected returns constant and (2) are not set up to test the hypothesis of mean-variance optimization. We use maximum likelihood estimation to impose a constraint between the coefficients and the error variance-covariance matrix. For a portfolio of six currencies, we are able statistically to reject the constraint. Evidently investors are either not sophisticated enough to maximize a function of the mean and variance of end-of-period wealth, or else are too sophisticated to do so.
Author | : Haim Levy |
Publisher | : Cambridge University Press |
Total Pages | : 457 |
Release | : 2011-10-30 |
Genre | : Business & Economics |
ISBN | : 1139503022 |
The Capital Asset Pricing Model (CAPM) and the mean-variance (M-V) rule, which are based on classic expected utility theory, have been heavily criticized theoretically and empirically. The advent of behavioral economics, prospect theory and other psychology-minded approaches in finance challenges the rational investor model from which CAPM and M-V derive. Haim Levy argues that the tension between the classic financial models and behavioral economics approaches is more apparent than real. This book aims to relax the tension between the two paradigms. Specifically, Professor Levy shows that although behavioral economics contradicts aspects of expected utility theory, CAPM and M-V are intact in both expected utility theory and cumulative prospect theory frameworks. There is furthermore no evidence to reject CAPM empirically when ex-ante parameters are employed. Professionals may thus comfortably teach and use CAPM and behavioral economics or cumulative prospect theory as coexisting paradigms.
Author | : Jeffrey A. Frankel |
Publisher | : MIT Press |
Total Pages | : 342 |
Release | : 1995 |
Genre | : Business & Economics |
ISBN | : 9780262061742 |
In this second collection of his writings on financial markets (the first, On Exchange Rates, covered international finance), Jeffrey Frankel turns his attention to domestic markets, with special attention to how national monetary policy is handled. The decade of the 1980s left many central bankers disillusioned with monetarism, so that the question of the optimal nominal anchor remains an open one. In this second collection of his writings on financial markets (the first, On Exchange Rates, covered international finance), Jeffrey Frankel turns his attention to domestic markets, with special attention to how national monetary policy is handled. The fifteen papers are divided into three sections, each introduced by the author. They cover, respectively, optimal portfolio diversification, indicators of expected inflation, and the determination of monetary policy in the face of uncertainty. In the first section, Frankel explores what information the theory of optimal portfolio diversification can give the macroeconomist. In the second section, he considers what economic variables central bankers might use to gauge whether monetary policy is too tight or too loose. And in the final section, he looks at the range of uncertainty over policy effects and how that complicates coordination of macroeconomic policymaking. The book concludes with a sympathetic analysis of nominal GDP targeting.
Author | : |
Publisher | : Bookboon |
Total Pages | : 57 |
Release | : |
Genre | : |
ISBN | : 8776817121 |
Author | : International Monetary Fund |
Publisher | : International Monetary Fund |
Total Pages | : 32 |
Release | : 1988-08-09 |
Genre | : Business & Economics |
ISBN | : 1451956967 |
The composition of Italian household wealth has undergone significant changes in the last decade, partly reflecting the growth of public debt and monetary policies aimed at encouraging its absorption by the household sector. Within a theoretical framework consistent with the “money in the utility function” approach, this paper investigates household preferences for liquidity services provided by short-term financial assets. In the attempt to explain the factors underlying those changes, the empirical analysis provides information on the pattern of substitution for the main components of financial wealth and permits analysis of a variety of government interventions in asset markets.
Author | : Tomoe Moore |
Publisher | : Routledge |
Total Pages | : 204 |
Release | : 2007-09-27 |
Genre | : Business & Economics |
ISBN | : 1134079214 |
In the early 1990s, financial liberalization started in India, and it was thought that such reforms would increase economic growth. This book is the first study to comprehensively apply the flow of funds model for India.
Author | : Courtenay C. Stone |
Publisher | : Springer Science & Business Media |
Total Pages | : 238 |
Release | : 2012-12-06 |
Genre | : Business & Economics |
ISBN | : 9400926650 |
Proceedings of the Eleventh Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis
Author | : Pablo Koch-Medina |
Publisher | : |
Total Pages | : 32 |
Release | : 2015 |
Genre | : |
ISBN | : |
This paper establishes existence and uniqueness of equilibria in a capital asset pricing model (CAPM) with non-tradeable endowments. The result is obtained by generalising the classical two-fund separation for asset-demand functions to reduce a multi-variate fixed-point problem to a uni-variate one. The paper highlights the importance of two limiting properties of agents' risk aversion. First, individual asset demand may become undefined if the limiting slopes of the investor's indifference curves are finite. Second, agents' aggregate demand for risk may be bounded from above so that no equilibrium exists if market risk is too large. The paper provides an explicit pricing formula and a generalised security market line and studies the effect of non-traded endowments on asset prices and asset allocations.