An Analytical Framework For Assessing Asset Pricing Models And Predictability
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| Author | : René Garcia |
| Publisher | : |
| Total Pages | : 47 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
New insights about the connections between stock market volatility and returns, the pricing of long-run claims, or return predictability have recently revived interest in consumption-based equilibrium asset pricing. The recursive utility model is prominently used in these contexts to determine the price of assets in equilibrium. Often, solutions are approximate and quantities of interest are computed through simulations. We propose an approach that delivers closed-form formulas for price-consumption and price-dividend ratios, as well as for many of the statistics usually computed to assess the ability of the model to reproduce stylized facts. The proposed framework is flexible enough to capture rich dynamics for consumption and dividends. Closed-form formulas facilitate the economic interpretation of empirical results. We illustrate the usefulness of our approach by investigating the properties of long-run asset pricing models in many empirical dimensions.
| Author | : Laurent E. Calvet |
| Publisher | : Academic Press |
| Total Pages | : 273 |
| Release | : 2008-10-13 |
| Genre | : Business & Economics |
| ISBN | : 0080559964 |
Calvet and Fisher present a powerful, new technique for volatility forecasting that draws on insights from the use of multifractals in the natural sciences and mathematics and provides a unified treatment of the use of multifractal techniques in finance. A large existing literature (e.g., Engle, 1982; Rossi, 1995) models volatility as an average of past shocks, possibly with a noise component. This approach often has difficulty capturing sharp discontinuities and large changes in financial volatility. Their research has shown the advantages of modelling volatility as subject to abrupt regime changes of heterogeneous durations. Using the intuition that some economic phenomena are long-lasting while others are more transient, they permit regimes to have varying degrees of persistence. By drawing on insights from the use of multifractals in the natural sciences and mathematics, they show how to construct high-dimensional regime-switching models that are easy to estimate, and substantially outperform some of the best traditional forecasting models such as GARCH. The goal of Multifractal Volatility is to popularize the approach by presenting these exciting new developments to a wider audience. They emphasize both theoretical and empirical applications, beginning with a style that is easily accessible and intuitive in early chapters, and extending to the most rigorous continuous-time and equilibrium pricing formulations in final chapters. - Presents a powerful new technique for forecasting volatility - Leads the reader intuitively from existing volatility techniques to the frontier of research in this field by top scholars at major universities - The first comprehensive book on multifractal techniques in finance, a cutting-edge field of research
| Author | : George M. Constantinides |
| Publisher | : Newnes |
| Total Pages | : 873 |
| Release | : 2013-02-08 |
| Genre | : Business & Economics |
| ISBN | : 0444594736 |
The 12 articles in this second of two parts condense recent advances on investment vehicles, performance measurement and evaluation, and risk management into a coherent springboard for future research. Written by world leaders in asset pricing research, they present scholarship about the 2008 financial crisis in contexts that highlight both continuity and divergence in research. For those who seek authoritative perspectives and important details, this volume shows how the boundaries of asset pricing have expanded and at the same time have grown sharper and more inclusive. - Offers analyses by top scholars of recent asset pricing scholarship - Explains how the 2008 financial crises affected theoretical and empirical research - Covers core and newly developing fields
| Author | : Doron Avramov |
| Publisher | : |
| Total Pages | : 62 |
| Release | : 2003 |
| Genre | : |
| ISBN | : |
This paper develops an asset allocation framework that incorporates prior beliefs about the extent of stock return predictability explained by asset pricing models. We find that when prior beliefs allow even minor deviations from pricing model implications, the resulting asset allocations depart considerably from and substantially outperform allocations dictated by either the underlying models or the sample evidence on return predictability. Under a wide range of beliefs about model pricing abilities, asset allocations based on conditional models outperform their unconditional counterparts that exclude return predictability.
| Author | : Wayne Ferson |
| Publisher | : MIT Press |
| Total Pages | : 497 |
| Release | : 2019-03-12 |
| Genre | : Business & Economics |
| ISBN | : 0262039370 |
An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
| Author | : Wayne Ferson |
| Publisher | : MIT Press |
| Total Pages | : 497 |
| Release | : 2019-03-26 |
| Genre | : Business & Economics |
| ISBN | : 0262351307 |
An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
| Author | : Stefan Nagel |
| Publisher | : Princeton University Press |
| Total Pages | : 156 |
| Release | : 2021-05-11 |
| Genre | : Business & Economics |
| ISBN | : 0691218706 |
A groundbreaking, authoritative introduction to how machine learning can be applied to asset pricing Investors in financial markets are faced with an abundance of potentially value-relevant information from a wide variety of different sources. In such data-rich, high-dimensional environments, techniques from the rapidly advancing field of machine learning (ML) are well-suited for solving prediction problems. Accordingly, ML methods are quickly becoming part of the toolkit in asset pricing research and quantitative investing. In this book, Stefan Nagel examines the promises and challenges of ML applications in asset pricing. Asset pricing problems are substantially different from the settings for which ML tools were developed originally. To realize the potential of ML methods, they must be adapted for the specific conditions in asset pricing applications. Economic considerations, such as portfolio optimization, absence of near arbitrage, and investor learning can guide the selection and modification of ML tools. Beginning with a brief survey of basic supervised ML methods, Nagel then discusses the application of these techniques in empirical research in asset pricing and shows how they promise to advance the theoretical modeling of financial markets. Machine Learning in Asset Pricing presents the exciting possibilities of using cutting-edge methods in research on financial asset valuation.
| Author | : A. Carretta |
| Publisher | : Springer |
| Total Pages | : 270 |
| Release | : 2013-02-03 |
| Genre | : Business & Economics |
| ISBN | : 1137293772 |
The current financial crisis started from the US real estate market and after, though the increase of risk premium requested by investors and due to the lack of liquidity of all financial markets, it became a world financial crisis. A detailed analysis during the crisis focuses attention on asset management, the real estate and public sector.
| Author | : Carlo A. Favero |
| Publisher | : |
| Total Pages | : 61 |
| Release | : 2016 |
| Genre | : Assets (Accounting) |
| ISBN | : |
We use the evidence on predictability of returns at different horizons to discriminate among competing asset pricing models. Specifically, we employ predictors-based variance bounds, i.e. bounds on the variance of the Stochastic Discount Factors (SDFs) that price a given set of returns conditional on the information contained in a vector of return predictors. We show that return predictability delivers variance bounds that are much tighter than the classical, unconditional Hansen and Jagannathan (1991) bounds. We use the predictors-based bounds to discriminate among three leading classes of asset pricing models: rare disasters, long-run risks and external habit. We find that the rare disasters model of Nakamura, Steinsson, Barro, and Ursua (2013) is the best performer since it satisfies rather comfortably the predictors-based bounds at all horizons. As for long-run risks, while the classical version of Bansal and Yaron (2004) is the model most challenged by the introduction of conditioning information since it struggles to meet the bounds at all horizons, the more general version of Schorfheide, Song, and Yaron (2016), which accounts for multiple volatility components, satisfies the 1- and 5-year bounds as long as the set of test assets includes only equities and T-Bills. The Campbell and Cochrane (1999) habit model lies somehow in the middle: it performs quite well at our longest 5-year horizon while it struggles at the 1-year horizon. Finally, when the set of test assets is augmented with Treasury Bonds, the only model that is able to satisfy the predictors-based bounds is the rare disasters model.
| Author | : Ohene Aku Kwapong |
| Publisher | : Songhai |
| Total Pages | : 310 |
| Release | : 2005-04 |
| Genre | : Business education |
| ISBN | : 0976724103 |
The objective of this book is to provide the fundamental building blocks of an MBA education so working professionals can become more effective in solving business problems.
