Conditional Time-varying Interest Rate Risk Premium PDF Download
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Author: Alan C. Hess
Publisher:
ISBN:
Category : Futures market
Languages : en
Pages : 36
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Book Description
Author: Alan C. Hess
Publisher:
ISBN:
Category : Futures market
Languages : en
Pages : 36
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Book Description
Author: Chu-Sheng Tai
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper examines the role of market, interest rate, and exchange rate risks in pricing a sample of the U.S. commercial bank stocks by developing and estimating a multi-factor model under both unconditional and conditional frameworks. Three different econometric methodologies are used to conduct the estimations and testing. Estimations based on NLSUR via GMM indicate that interest rate risk is the only priced factor in the unconditional three-factor model. However, based on quot;Pricing Kernelquot; approach by Dumas and Solnik (Journal of Finance 50, 1995, 445-479), strong evidence of exchange rate risk is found in both large bank and regional bank stocks, and strong evidence of world market risk is found for the regional bank stocks in the conditional three-factor model with time-varying risk prices. Finally, estimations based on the multivariate GARCH in mean approach where both conditional first and second moments of bank portfolio returns and risk factors are estimated simultaneously show strong evidence of time-varying interest rate and exchange rate risk premia and weak evidence of time-varying market risk premium for all bank portfolios. Furthermore, among the three time-varying risk premia, the interest rate risk premium is the major one in describing the dynamics of the U.S. bank stock returns.
Author: Dennis Bams
Publisher:
ISBN:
Category : Interest rate risk
Languages : en
Pages : 44
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Book Description
Author: John Y. Campbell
Publisher: OUP Oxford
ISBN: 019160691X
Category : Business & Economics
Languages : en
Pages : 272
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Book Description
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Author: Se-jin Kim
Publisher:
ISBN:
Category :
Languages : en
Pages : 116
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Book Description
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:
Publisher: Lulu.com
ISBN: 9291316695
Category : Bank capital
Languages : en
Pages : 294
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Book Description
Author: Dimitris Margaritis
Publisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 32
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Book Description
Author: Alberto Giovannini
Publisher:
ISBN:
Category : Business enterprises
Languages : en
Pages : 56
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Book Description
Recent empirical work indicates that, in a variety of financial markets, both conditional expectations and conditional variances of returns are time- varying. The purpose of this paper is to determine whether these joint fluctuations of conditional first and second moments are consistent with the Sharpe-Lintner-Mossin capital-asset-pricing model. We test the mean-variance model under several different assumptions about the time-variation of conditional second moments of returns, using weekly data from July 1974 to December 1986, that include returns on a portfolio composed of dollar, Deutsche mark, Sterling, and Swiss franc assets, together with the US stock market. The model is estimated constraining risk premia to depend on the time-varying conditional covariance matrix of the residuals of the expected returns equations. The results indicate that estimated conditional variances cannot explain the observed time-variation of risk premia. Furthermore, the constraints imposed by the static CAPH are always rejected.
Author: Jeffrey A. Frankel
Publisher:
ISBN:
Category :
Languages : en
Pages : 22
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Book Description
The optimal-diversification model of investors' portfolio behavior can give a linear relationship between the exchange risk premium and the conditional exchange rate variance. This note surveys recent empirical work that allows for the conditional variance itself, and therefore the risk premium, to vary over time. In particular, it examines the implications of recent empirical estimates for earlier arguments, based on the assumption that the conditional variance was constant over time, that the exchange risk premium had to be small in magnitude and variability.
