A Critical Investigation Of The Explanatory Role Of Factor Mimicking Portfolios In Multifactor Asset Pricing Models
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| Author | : Hossein Asgharian |
| Publisher | : |
| Total Pages | : 31 |
| Release | : 2002 |
| Genre | : |
| ISBN | : |
The common approach for constructing factor mimicking portfolios is to go long in assets with high loadings and to short-sell those with low loadings on some background factors. As a result portfolios containing stocks with low loading on the background factor receive negative betas against the corresponding mimicking portfolio. Thus, such portfolios appear as hedges against the background risk and may in tests of asset pricing models receive significant positive intercepts. The final result regarding acceptance or rejection of an asset pricing model may therefore to some extent be understood as a random outcome.
| Author | : Magued Iskander |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 613 |
| Release | : 2008-08-20 |
| Genre | : Computers |
| ISBN | : 140208739X |
Innovative Techniques in Instruction Technology, E-Learning, E-Assessment and Education is a collection of world-class paper articles addressing the following topics: (1) E-Learning including development of courses and systems for technical and liberal studies programs; online laboratories; intelligent testing using fuzzy logic; evaluation of on line courses in comparison to traditional courses; mediation in virtual environments; and methods for speaker verification. (2) Instruction Technology including internet textbooks; pedagogy-oriented markup languages; graphic design possibilities; open source classroom management software; automatic email response systems; tablet-pcs; personalization using web mining technology; intelligent digital chalkboards; virtual room concepts for cooperative scientific work; and network technologies, management, and architecture. (3) Science and Engineering Research Assessment Methods including assessment of K-12 and university level programs; adaptive assessments; auto assessments; assessment of virtual environments and e-learning. (4) Engineering and Technical Education including cap stone and case study course design; virtual laboratories; bioinformatics; robotics; metallurgy; building information modeling; statistical mechanics; thermodynamics; information technology; occupational stress and stress prevention; web enhanced courses; and promoting engineering careers. (5) Pedagogy including benchmarking; group-learning; active learning; teaching of multiple subjects together; ontology; and knowledge representation. (6) Issues in K-12 Education including 3D virtual learning environment for children; e-learning tools for children; game playing and systems thinking; and tools to learn how to write foreign languages.
| Author | : Julian Fischer |
| Publisher | : GRIN Verlag |
| Total Pages | : 109 |
| Release | : 2021-06-14 |
| Genre | : Business & Economics |
| ISBN | : 3346420094 |
Master's Thesis from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,7, University of Hannover (Institut für Finanzwirtschaft und Rohstoffmärkte), language: English, abstract: In this paper, we examine how various modern multifactor models, such as the Carhart factor model, five-factor model and its complement six-factor model by Fama and French, the q-factor model by Hou, Wue and Zhang, and the mispricing factor model by Stambaugh and Yuan perform in the German stock market. It is discernible that, depending on the application model, like factor spanning tests, different sortings, return anomalies, sector- and equity fund investigation, they often provide quite similar explanatory power, while in individual cases sometimes one and sometimes the other model performs better. The underlying factors contribute differently to the explanatory power depending on the time period. Thus, in case of doubt, the six-factor model is preferable, as it is the most versatile model. Since the establishment of the capital asset pricing model as a cornerstone of modern capital market theory in the 1960s, new investigations and studies have been built on this model on an ongoing basis. This continuously leads to extensions and modifications of the asset pricing models since then. These models can be used in various ways, for example to explain the pricing of risky financial assets under restrictive assumptions or to gain important insights into the relationship between expected return and risk of securities. These can be used in various ways, for example to explain the pricing of risky financial assets under restrictive assumptions or to gain important insights into the relationship between expected return and risk of securities. In this paper, we aim to answer the overarching research question of how modern asset pricing models perform for the German stock market. For this purpose, we first discuss the characteristics of the German stock market, followed by the milestones of the development of factor models, their empirical evidence and their factors, as well as internationally known return anomalies. In the subsequent part, five modern asset pricing models are tested in different scenarios of the German stock market, including factor spanning tests, different sortings, anomalies, sectors and in equity funds. For this purpose, various analytical methods are used and performed with the software “Stata”. Finally, the comprehensive results are summarized and concluded.
| Author | : |
| Publisher | : |
| Total Pages | : 1706 |
| Release | : 2006 |
| Genre | : Finance |
| ISBN | : |
| Author | : Tim Perschbacher |
| Publisher | : GRIN Verlag |
| Total Pages | : 146 |
| Release | : 2023-07-10 |
| Genre | : Business & Economics |
| ISBN | : 3346903400 |
Bachelor Thesis from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, , language: English, abstract: This study is concerned with an empirical analysis of asset pricing. More specifically, this paper examines whether multifactor asset pricing models are able to explain variation in REIT returns in the US and Japan. In addition to traditional multifactor models, an Alternative Four-Factor Model (AFF) was developed considering net profit margin as an additional risk factor. Thence, this paper seeks to provide valuable information for investors and fund managers regarding their indirect real estate investment selection. Using a sample period between July 1994 (US) / July 2011 (Japan) to December 2020, rigorous multiple-time-series regression is applied to calculate factor loadings for each risk factor and the corresponding alpha values of each model to evaluate their effectiveness in explaining variation and cross-section of REIT returns. Most studies on asset pricing models focus on size and value sorted portfolios as dependent variables. This paper broadens the approach with four other double sorted test portfolios to check the robustness of each single factor to explain return anomalies. Results show that market premium and size premium represent risk factors for US-REITs, whereas market premium and value premium are suitable risk factors for Japanese-REITs. The momentum factor does not capture risk and is insignificant in both markets. The study shows low correlations between traditional and REIT specific as well as between US and Japanese risk factors. This suggests that firstly risk factors are country specific and secondly that they are asset specific. Moreover, the Fama-French Three-Factor Model (FF3) clearly outperforms the CAPM, while the Carhart Four-Factor Model (CH4) marginally improves the explanatory power over the FF3. This is observed in both markets. Outcomes demonstrate that the Alternative Four-Factor Model (AAF) does not improve prediction power for returns of Japanese-REITs compared to the FF3 and CH4. On the contrary, results are ambiguous concerning US-REITs. While the additional risk factor, net profit margin, generates a negative return, the model is superior to the FF3 and CH4 in terms of explaining variation and cross-section of returns.
| Author | : Christoph Lohrmann |
| Publisher | : GRIN Verlag |
| Total Pages | : 42 |
| Release | : 2015-08-18 |
| Genre | : Business & Economics |
| ISBN | : 3668032238 |
Seminar paper from the year 2014 in the subject Economics - Finance, grade: 6,0 (Schweizer Notensystem), University of Liechtenstein, früher Hochschule Liechtenstein, language: English, abstract: This paper is focused on comparing the Capital Asset Pricing Model, the Fama-French Three Factor model and two modified versions of the Fama-French Model in their ability to explain excess returns. The first modified model contains the same explanatory variables as the Fama-French Model but with an additional AR(1) process. The second modification contains instead of an additional AR(1) an AR(2) process. Evaluated by the adjusted R2 and the Akaike information criterion, the Fama-French model yields a higher model-fit than the CAPM. The modified Fama-French Model with an AR(2) process leads to significant results for the twice lagged return in the model in four out of six tested portfolios. Therefore, the in-sample regression reveals a higher model-fit of the modified Fama-French model with AR(2) in comparison to the other three models. Since the results differ from a regression in the subsequent period, the results are most likely spurious. Nevertheless, the authors show the high-er model-fit of the Fama-French Three Factor Model in relation to the CAPM.
| Author | : Khushboo Sagar |
| Publisher | : |
| Total Pages | : 20 |
| Release | : 2020 |
| Genre | : |
| ISBN | : |
Generous consideration has been pursued to the empirical testing of multi factor assets pricing models. However, literature provides mixed kind of evidences in the support of multi factor assets pricing model. This study reviews 20 research articles based on multi factor assets pricing model and examines 25 research papers based on the empirically testing of multi factor assets pricing model published during 2001 and 2018 to study the multi factor assets pricing model in the Indian context as well as foreign context. CAPM is a popular normative model used by researchers to explain the relationship between risk and expected return of a risky asset which was developed by Sharpe (1964) and Lintner (1965). This model takes only one risk factor which is the excess market portfolio return (Market premium). Because of poor performance of CAPM in explaining realized returns, the Fama and French three factor asset pricing model (1993) was developed. Fama and French (1993) documented the size effect and the value effect that were not included in the CAPM, generally known as CAPM anomalies. Mark M. Carhart (1997) developed the Carhart four factor model. It is an extension of the FF three factor model with one another factor i.e. momentum factor effect for asset pricing of stocks. In view of the limitations of the earlier three-factor model, Fama and French five-factor asset pricing model (2014) was developed. Fama and French (2014) came with profitability pattern and investment pattern in average stock return along with the market premium, size premium and value premium. This paper may be an expedient source of information to the academics, financial analyst and researchers to understand the asset pricing model.
| Author | : Hossein Asgharian |
| Publisher | : |
| Total Pages | : 35 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
Our aim is to give a comparative analysis of ability of different factor mimicking portfolios in representing the background factors. Our analysis contains a cross-sectional regression approach, a time-series regression approach and a portfolio approach for constructing factor mimicking portfolios. The focus of the analysis is the power of mimicking portfolios in the asset pricing models. We conclude that the time series regression approach, with the book-to-market sorted portfolios as the base assets, is the most proper alternative to construct mimicking portfolios for factors for which a time-series of factor realisation is available. To construct mimicking portfolios based on the firm characteristics we suggest a loading weighted portfolio approach.
| Author | : Emmanuel Jurczenko |
| Publisher | : |
| Total Pages | : 39 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
The estimation of risk factors and their replication through mimicking portfolios are of critical importance for academics and practitioners in finance. We propose a general optimization framework to construct macro factor mimicking portfolios that encompasses existing portfolio mimicking approaches, such as two-pass cross-sectional regression models (Fama and MacBeth, 1973) and maximal correlation approaches (Huberman et al., 1987, and Lamont, 2001). We incorporate empirical estimation improvements through machine learning methodologies. We provide an application to the construction of tradable portfolios mimicking three global macro factors, namely growth, inflation surprises, and financial stress indicators. We show how these macro mimicking factors can be used to improve the risk-return profile of a typical endowment multi-asset portfolio.
| Author | : Dixin Zhang |
| Publisher | : |
| Total Pages | : 21 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
After analyzing the relationship and risk type of factors, this paper proposes a new factor pricing model consisting of factor portfolios derived from the optimal distribution of risk and return. The new factor model outperforms the Sharp-Lintner (1964, 1965) CAPM, the Fama-French (1993) three-factor model, the Carhart (1997) four-factor model, the Hou-Xue-Zhang (2015) four-factor model and the Fama-French (2015, 2016) five-factor model in 16 of the 17 mimicking pricing portfolios. So far portfolios used for tests are limited and there are no studies investigating robustness of the models. To solve this problem, we propose using time-series simulation tests and anomaly portfolio reconstruction tests to conduct the robustness tests and GRS tests. The empirical results confirm our new factor models are more robust and has higher pricing power than others. The research of this paper is helpful to expand the modern financial pricing theory, and has a certain reference value for financial practice.
