Essays in Consumption-based Asset Pricing Models PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Essays in Consumption-based Asset Pricing Models PDF full book. Access full book title Essays in Consumption-based Asset Pricing Models by Hugo Alejandro Garduño Arredondo. Download full books in PDF and EPUB format.
Author: Hugo Alejandro Garduño Arredondo
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 324
Get Book Here
Book Description
Author: Hugo Alejandro Garduño Arredondo
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 324
Get Book Here
Book Description
Author: Xiang Zhang
Publisher:
ISBN: 9788449039119
Category :
Languages : en
Pages : 121
Get Book Here
Book Description
This thesis consists of three essays on empirical asset pricing around three themes: evaluating linear factor asset pricing models by comparing their misspecified measures, understanding the long-run risk on consumption-leisure to investigate their pricing performances on cross-sectional returns, and evaluating conditional asset pricing models by using the methodology of dynamic cross-sectional regressions. The first chapter is ̀̀Comparing Asset Pricing Models: What does the Hansen-Jagannathan Distance Tell Us?''. It compares the relative performance of some important linear asset pricing models based on the Hansen-Jagannathan (HJ) distance using data over a long sample period from 1952-2011 based on U.S. market. The main results are as follows: first, among return-based linear models, the Fama-French (1993) five-factor model performs best in terms of the normalized pricing errors, compared with the other candidates. On the other hand, the macro-factor model of Chen, Roll, and Ross (1986) five-factor is not able to explain industry portfolios: its performance is even worse than that of the classical CAPM. Second, the Yogo (2006) non-durable and durable consumption model is the least misspecified, among consumption-based asset pricing models, in capturing the spread in industry and size portfolios. Third, the Lettau and Ludvigson (2002) scaled consumption-based CAPM (C-CAPM) model obtains the smallest normalized pricing errors pricing gross and excess returns on size portfolios, respectively, while Santos and Veronesi (2006) scaled C-CAPM model does better in explain the return spread on portfolios of U.S. government bonds. The second chapter (̀̀Leisure, Consumption and Long Run Risk: An Empirical Evaluation'') uses a long-run risk model with non-separable leisure and consumption, and studies its ability to price equity returns on a variety of portfolios of U.S. stocks using data from 1948-2011. It builds on early work by Eichenbaum et al. (1988) that explores the empirical properties of intertemporal asset pricing models where the representative agent has utility over consumption and leisure. Here we use the framework in Uhlig (2007) that allows for a stochastic discount factor with news about long-run growth in consumption and leisure. To evaluate our long-run model, we assess its performance relative to standard asset pricing models in explaining the cross-section of returns across size, industry and value-growth portfolios. We find that the long-run consumption-leisure model cannot be rejected by the J-statistic and it does better than the standard C-CAPM, the Yogo durable consumption and Fama-French three-factor models. We also rank the normalized pricing errors using the HJ distance: our model has a smaller HJ distance than other candidate models. Our paper is the first, as far as we are aware, to use leisure data with adjusted working hours as a measure of leisure i.e., defined as the difference between a fixed time endowment and the observable hours spent on working, home production, schooling, communication, and personal care (Yang (2010)). The third essay: ̀̀Empirical Evaluation of Conditional Asset Pricing Models: An Economic Perspective'' uses dynamic Fama-MacBeth cross-sectional regressions and tests the performance of several important conditional asset pricing models when allowing for time-varying price of risk. It compares the performance of conditional asset pricing models, in terms of their ability to explain the cross-section of returns across momentum, industry, value-growth and government bond portfolios. We use the new methodology introduced by Adrian et al. (2012). Our main results are as follows: first we find that the Lettau and Ludvigson (2001) conditional model does better than other models in explaining the cross-section of momentum and value-growth portfolios. Second we find that the Piazessi et al. (2007) consumption model does better than others in pricing the cross-section of industry portfolios. Finally, we find that in the case of the cross-section of risk premia on U.S. government bond portfolios the conditional model in Santos and Veronesi (2006) outperforms other candidate models. Overall, however, the Lettau and Ludvigson (2001) model does better than other candidate models. Our main contributions here is using a recently developed method of dynamic Fama-MacBeth regressions to evaluate the performance of leading conditional CAPM (C-CAPM) models in a common set of test assets over the time period from 1951-2012.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This thesis contributes to the literature on the consumption-portfolio choice under uncertainty and is motivated by several empirical failures of the standard consumption-based capital asset pricing model (CCAPM). This canonical model has proven disappointing empirically and has even been questioned whether it is theoretically valuable and practically useful even if it is in some sense the only model we have. The frustration is due to that the model performs no better in practice and generates some well-known consumption puzzles and asset pricing puzzles. The purpose of the thesis is to reexamine these puzzles and then to resolve them. After the debate of Hansen and Singleton (1983) and Hall (1988), the estimates of the elasticity of intertemporal substitution (EIS) of consumption in a representative agent model have not resulted in any consensus. Based on this observation, the first chapter of this thesis is focused on resolving the elasticity puzzle or the unresponsiveness to interest rates. We propose a new theoretical and empirical perspective on the relationship between consumption growth and asset returns. In the spirit of Hansen and Singleton (1983), we demonstrate that observed growth rate of consumption responds not only to a specific asset return but also to other asset returns. Empirically, US postwar quarterly data are used to fit the regression model derived in the chapter, and the sample period is 1953Q2-2001Q2. Empirical results show that the EIS is greater than 0.1, the maximum value considered possible by Hall (1988). Accordingly, we argue that there is no elasticity puzzle in the standard representative agent model. The second chapter provides an explanation for the puzzle of excess sensitivity of consumption to expected income proposed by Flavin (1981). We exploit consumer's superior information (i.e., windfalls in investments and in income) to integrate the consumption Euler equations into a generalized Euler equation. The implications emerging f.
Author: Ziemowit Konrad Bednarek
Publisher:
ISBN:
Category :
Languages : en
Pages : 368
Get Book Here
Book Description
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: St?phane Chr?tien
Publisher: LAP Lambert Academic Publishing
ISBN: 9783846583357
Category :
Languages : en
Pages : 136
Get Book Here
Book Description
Many financial models are evaluated using the stochastic discount factor (SDF) approach because of its simplicity, flexibility and universality. The two essays of this work exploit these characteristics to re-examine two long-standing asset pricing topics: consumption-based and performance measurement models. The first essay develops a methodology to understand and compare the sources of pricing errors in models based on SDF moments. The method allows a new investigation of preference-based explanations of the risk-free rate, term premium and risk premium puzzles. The second essay presents a method to measure performance evaluation by developing bounds on admissible performance measures that are free from inference errors. The bounds are furthermore used in ranking mutual funds and as a diagnostic instrument for evaluating candidate performance measures. Each essay carefully establishes the empirical relevancy of the proposed methodologies. These extensions of the SDF framework provide important new insights and have numerous finance applications for academic researchers and practitioners.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Author: Robert Allen Vergun
Publisher:
ISBN:
Category :
Languages : en
Pages : 208
Get Book Here
Book Description
Author: Man Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 382
Get Book Here
Book Description
This thesis undertakes empirical and theoretical research in asset pricing in both US and Global financial markets, with a particular focus on the financial impact of socially responsible investment (SRI) and implementation of the ICAPM and CCAPM frameworks in the US market. We aim to provide a comprehensive analysis of the financial impact of SRI on the US and Global equity markets and to resolve issues relating to the CCAPM that remain in the asset pricing literature. Prior studies that examine the financial impact of SRI produce mixed findings. Therefore, we begin by reviewing the relevant international literature and stress the importance of selecting appropriate SRI proxies in asset pricing tests. We enrich the literature by identifying areas that need to be carefully considered in constructing an SRI proxy and this will shed new light on the question of what measure of SRI should be used. In the first empirical chapter, we examine the financial impact of SRI on global equity returns, assessing our SRI proxies in the context of standard asset pricing models. We find that SRI has no significant impact on the global equity market. However, since SRI has become an increasingly popular practice only recently, our results may be hampered by data constraints. This motivates the next stage of the analysis wherein we employ the ICAPM framework. In Chapter 3, we formulate a two-factor empirical model under the ICAPM framework and construct SRI proxies by using the economic tracking portfolio method of Lamont (2001) to further examine whether SRI has financial impacts on the US equity market. Our findings in Chapter 3 are consistent with those of Chapter 2. The combined import of our findings in both chapters suggests that investors are free to implement SRI mandates without fear of breaching their fiduciary duties from inferior performance due to incorporating an SRI process. This will encourage the adoption of socially responsible investment strategies in practice. In the final chapter, we examine the empirical validity of the CCAPM that assumes investor's utility is non-separable across states of nature. To our knowledge, it is the first to evaluate the cross-sectional implications of the recursive utility function of Epstein and Zin (1991) by using innovations in consumption growth. Based on these analyses, we conclude that a variable capturing innovations in consumption growth is significantly priced in asset returns.
Author: Yan Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
My dissertation contains three chapters. Chapter one proposes a nonparametric method to evaluate the performance of a conditional factor model in explaining the cross section of stock returns. There are two tests: one is based on the individual pricing error of a conditional model and the other is based on the average pricing error. Empirical results show that for valueweighted portfolios, the conditional CAPM explains none of the asset-pricing anomalies, while the conditional Fama-French three-factor model is able to account for the size effect, and it also helps to explain the value effect and the momentum effect. From a statistical point of view, a conditional model always beats a conditional one because it is closer to the true data-generating process. Chapter two proposes a general equilibrium model to study the implications of prospect theory for individual trading, security prices and trading volume. Its main finding is that different components of prospect theory make different predictions. The concavity/convexity of the value function drives a disposition effect, which in turn leads to momentum in the cross-section of stock returns and a positive correlation between returns and volumes. On the other hand, loss aversion predicts exactly the opposite, namely a reversed disposition effect and reversal in the cross-section of stock returns, as well as a negative correlation between returns and volumes. In a calibrated economy, when prospect theory preference parameters are set at the values estimated by the previous studies, our model can generate price momentum of up to 7% on an annual basis. Chapter three studies the role of aggregate dividend volatility in asset prices. In the model, narrow-framing investors are loss averse over fluctuations in the value of their financial wealth. Persistent dividend volatility indicates persistent fluctuation in their financial wealth and makes stocks undesirable. It helps to explain the salient feature of the stock market including the high mean, excess volatility, and predictability of stock returns while maintaining a low and stable risk-free rate. Consistent with the data, stock returns have a low correlation with consumption growth, and Sharpe ratios are time-varying.
Author: Pooya Nazeran
Publisher:
ISBN:
Category :
Languages : en
Pages : 138
Get Book Here
Book Description
Abstract: A considerable portion of the asset pricing literature considers the demand schedule for asset prices to be perfectly elastic (flat). As argued, asset prices are determined using information about future payoff distribution, as well as the discount rate; consequently, an asset would be priced independent of its available supply. Furthermore, such a flat demand curve is considered to be a consequence of the Efficient Market Hypothesis. My dissertation evaluates and questions the factuality of these assertions. I approach this problem from both an empirical and a theoretical perspective. The general argument is that asset prices do respond to supply-shocks; and changes in aggregate demand, stemming from preference changes, new international investments, or quantitative easing by the Fed, can result in price changes. Hence, asset prices are determined by both demand and supply factors. In the first essay, "Downward Sloping Asset Demand: Evidence from the Treasury Bills Market," I report on my empirical study which establishes the existence of a downward sloping demand curve (DSDC) in the T-bill market. In the second essay, "Asset Pricing: Inelastic Supply," I examine the theoretical issues concerning a downward sloping demand curve. I begin by clarifying a common confusion in the literature, namely, that many asset pricing models imply a flat demand curve. I show that the prominent asset pricing models, including Capital Asset Pricing Model (CAPM), Arbitrage Pricing Theory (APT) and Consumption Capital Asset Pricing Model (CCAPM), all have an underlying DSDC. I further show that, while these models imply the relevance of supply, they are inconvenient as a vehicle for the estimation and analysis of the DSDC in the data. For those purposes, I develop an asset pricing framework based on the stochastic discount factor framework, specifically designed with a DSDC at its heart. I end the essay with a discussion of the framework's implications and applications. In the third essay I develop on the Factor-Augmented Vector-Autoregression (FAVAR) literature, proposing a bias-corrected method. As implemented in the literature, the Principal Component Analysis stage of FAVAR introduces a classical-error-in-variable problem which leads to bias. I propose an instrument-based method for bias correction.
