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Author: Joao Gomes
Publisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 82
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Book Description
Author: Joao Gomes
Publisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 82
Get Book Here
Book Description
Author: Joao F. Gomes
Publisher:
ISBN:
Category :
Languages : en
Pages : 71
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Book Description
We explicitly link expected stock returns to firm characteristics such as firm size and book-to-market ratio in a dynamic general equilibrium production economy. Despite the fact that stock returns in the model are characterized by an intertemporal CAPM with the market portfolio as the only factor, size and book-to-market play separate roles in describing the cross-section of returns. These firm characteristics appear to predict stock returns because they are correlated with the true conditional market beta of returns. These cross-sectional relations can subsist after one controls for a typical empirical estimate of market beta. This lends support to the view that the documented ability of size and book-to-market to explain the cross-section of stock returns is not necessarily inconsistent with a single-factor conditional CAPM model. Our model also gives rise to a number of additional implications for the cross-section of returns. In this paper, we focus on the business cycle properties of returns and firm characteristics. Our results appear consistent with the limited existing evidence and provide a benchmark for future empirical studies.cycle properties.
Author: Darrell Duffie
Publisher: Princeton University Press
ISBN: 1400829208
Category : Business & Economics
Languages : en
Pages : 488
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Book Description
This is a thoroughly updated edition of Dynamic Asset Pricing Theory, the standard text for doctoral students and researchers on the theory of asset pricing and portfolio selection in multiperiod settings under uncertainty. The asset pricing results are based on the three increasingly restrictive assumptions: absence of arbitrage, single-agent optimality, and equilibrium. These results are unified with two key concepts, state prices and martingales. Technicalities are given relatively little emphasis, so as to draw connections between these concepts and to make plain the similarities between discrete and continuous-time models. Readers will be particularly intrigued by this latest edition's most significant new feature: a chapter on corporate securities that offers alternative approaches to the valuation of corporate debt. Also, while much of the continuous-time portion of the theory is based on Brownian motion, this third edition introduces jumps--for example, those associated with Poisson arrivals--in order to accommodate surprise events such as bond defaults. Applications include term-structure models, derivative valuation, and hedging methods. Numerical methods covered include Monte Carlo simulation and finite-difference solutions for partial differential equations. Each chapter provides extensive problem exercises and notes to the literature. A system of appendixes reviews the necessary mathematical concepts. And references have been updated throughout. With this new edition, Dynamic Asset Pricing Theory remains at the head of the field.
Author: Juan-Pedro Gomez
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper tests the cross-section implications of quot;keeping up with the Jonesesquot; (KUJ) preferences in an international setting. When agents have KUJ preferences, in the presence of un-diversifiable non-financial wealth, both world and domestic risk (the idiosyncratic component of domestic wealth) are priced, and the equilibrium price of risk of the domestic factor is negative. We use labor income as a proxy for domestic wealth and find empirical support for these predictions. Our test includes securities from the US, UK, Japan and Germany. In terms of explaining the cross-section of stocks returns and the size of the pricing errors, the model based on relative wealth concerns performs better than alternative international asset pricing models.
Author: Donald B. Keim
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
A growing number of empirical studies suggest that betas of common stocks do not adequately explain cross-sectional differences in stock returns. Instead, a number of other variables (e.g., size, ratio of book to market, earnings/price) that have no basis in extant theoretical models seem to have significantly predictive ability. Some interpret the findings as evidence of market efficiency. Others argue that the Capital Asset Pricing Model is an incomplete description of equilibrium price formation and these variables are proxies for additional risk factors. In this paper we review the evidence on the cross-sectional behavior of common stock returns on the U.S. and other equity markets around the world. We also report some new evidence on these cross-sectional relations using data from both U.S. and international stock markets. We find, among other results, that although the return premia associated with these ad hoc variables are significant in most international stock markets, the premia are uncorrelated across markets. The accumulating evidence prompts the following question: If these return premia occur primarily in January and are uncorrelated across major international equity markets, is it reasonable to characterize them as compensation for risk?
Author: Radu Burlacu
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
We derive a cross-sectional asset pricing measure from a noisy multi-asset rational expectations equilibrium model. The measure is based on the time-series covariance of an asset's returns and security prices. Empirically, stocks with a measure one standard deviation above and below the average have returns that differ by 0.36% the following month (4.44% per annum) which is statistically significant at the 1%-level. Results remain significant after including variables such as stock market capitalization, book-to-market ratio, and the probability of information-based trading. Our measure can be understood as a proxy for information risk and/or supply uncertainty. We show the two explanations are theoretically intertwined.
Author: Turan G. Bali
Publisher: John Wiley & Sons
ISBN: 1118589475
Category : Business & Economics
Languages : en
Pages : 512
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Book Description
“Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Author: John H. Cochrane
Publisher: Now Publishers Inc
ISBN: 1933019158
Category : Business & Economics
Languages : en
Pages : 117
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Book Description
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Author: Erica X. N. Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
We analyze the effects of monetary policy on the equity premium and the cross-section of stock returns in a general equilibrium framework. Monetary policy is conducted using an interest-rate policy rule reacting to inflation and has real effects due to nominal rigidities in the production sector. The model predicts that higher price rigidities and lower policy responses to inflation generate higher equity premiums. Moreover, industries with lower price rigidities earn higher expected returns than industries with higher price rigidities. We provide a consumption-based explanation for this result. Real profits of industries with low rigidities are more sensitive to monetary policy shocks than profits of industries with high rigidities. Since profits are positively correlated with aggregate consumption, investors require higher compensations for holding stocks with lower profits when marginal utility is high. In addition, the difference in expected returns between high and low rigidity industries decreases when the response of monetary policy to inflation is more aggressive. We find empirical evidence supporting all model's predictions.
Author: Erica X. N. Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
The effects of monetary policy shocks on the equity premium and the cross-section of stock returns are analyzed in general equilibrium. Policy shocks affect real stock returns as a result of nominal product price rigidities. Two opposite effects determine the impact of policy shocks on stock returns. A contractionary shock increases the marginal utility of consumption, reduces aggregate output, and increases production markups. The output reduction requires a positive premium in expected returns. The markup increase acts as a consumption hedge and involves a negative premium. Low elasticities of intertemporal substitution of consumption and labor amplify the markup effect and can generate a negative net effect on the equity premium. In the cross-section, a contractionary shock reduces the relative output and expands the relative markup of a more rigid price industry with respect to a more flexible price industry. If the relative markup expansion dominates the relative output decline, the expected stock return of the more flexible price industry is higher than that of the more rigid price one. As the responsiveness of the policy to economic conditions increases, the effects of policy shocks on the equity premium and the cross-section decline. In addition, the policy-induced markup variation generates time variation in expected returns.
