Asset Price Response To New Information
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Author | : Guo Ying Luo |
Publisher | : Springer Science & Business Media |
Total Pages | : 70 |
Release | : 2013-10-16 |
Genre | : Business & Economics |
ISBN | : 1461493692 |
Asset Price Response to New Information examines the effect of two types of psychological biases (namely, conservatism bias and representativeness heuristic) on the asset price reaction to new information. The author constructs various models of a competitive securities market or a security market allowing for strategic interaction among traders to prove rigorously that either conservatism or representativeness is capable of generating both asset price overreaction and underreaction to new information. The results shed some new insights on the phenomena of the asset price overreaction and underreaction to new information. In the literature, very little has been published in this area of behavioral finance. This volume will appeal to graduate-level students and researchers in finance, behavioral finance, and financial engineering.
Author | : William Curt Hunter |
Publisher | : MIT Press |
Total Pages | : 650 |
Release | : 2005 |
Genre | : Business & Economics |
ISBN | : 9780262582537 |
A study of asset price bubbles and the implications for preventing financial instability.
Author | : John Y. Campbell |
Publisher | : University of Chicago Press |
Total Pages | : 444 |
Release | : 2008-11-15 |
Genre | : Business & Economics |
ISBN | : 0226092127 |
Economic growth, low inflation, and financial stability are among the most important goals of policy makers, and central banks such as the Federal Reserve are key institutions for achieving these goals. In Asset Prices and Monetary Policy, leading scholars and practitioners probe the interaction of central banks, asset markets, and the general economy to forge a new understanding of the challenges facing policy makers as they manage an increasingly complex economic system. The contributors examine how central bankers determine their policy prescriptions with reference to the fluctuating housing market, the balance of debt and credit, changing beliefs of investors, the level of commodity prices, and other factors. At a time when the public has never been more involved in stocks, retirement funds, and real estate investment, this insightful book will be useful to all those concerned with the current state of the economy.
Author | : John Cong Zhou |
Publisher | : |
Total Pages | : |
Release | : 2016 |
Genre | : |
ISBN | : |
My dissertation is composed of three chapters that are unified by their exploration of asset prices and macroeconomic news announcements. With respect to asset prices, my main focus is on the price discovery process: how do asset prices reveal information relevant for asset fundamentals? Through my research, I provide new answers to this question. My work gets at core issues in asset pricing: whether financial markets are informationally efficient; why some assets earn unconditionally high premia; and how the sensitivity of prices to information varies over time and across assets. Specifically, chapter one shows evidence that sophisticated traders with an informational advantage inefficiently impound their edge into the aggregate U.S. stock market and U.S. Treasury bonds. In chapter two, I explore a model in which investors are averse to ambiguity (Knightian uncertainty) to explain why the equity premium is concentrated around specific events. Finally, chapter three investigates how the Federal Reserve's zero lower bound affects the response of asset prices, in particular interest rates, to information. Each of the three chapters explores the price discovery process using the unique setting of U.S. macroeconomic news announcements, which are made by government agencies and private-sector organizations and cover macroeconomic data on inflation, output, and unemployment. Analyzing financial markets in this setting deepens our understanding of how asset prices reflect information about macroeconomic fundamentals. At the same time, the results have macroeconomic implications; for example, the assumptions of monetary policy models in theory and the effectiveness of unconventional monetary policy in practice.
Author | : Simon Gilchrist |
Publisher | : |
Total Pages | : 80 |
Release | : 2006 |
Genre | : Asset allocation |
ISBN | : |
This paper studies the implications of financial market imperfections represented by a countercyclical external finance premium and the gradual recognition of changes in the drift of technology growth for the design of an interest rate rule. Asset price movements induced by changes in trend growth influence balance-sheet conditions that determine the external finance premium. Such movements are magnified when the private sector is imperfectly informed regarding the trend growth rate of technology. The presence of financial market imperfections provides a motivation for responding to the gap between the observed asset prices and the potential level of asset prices in addition to responding strongly to inflation. This is because the asset price gap represents distortions in the resource allocation induced by financial market imperfections more distinctly than inflation . The policymaker's imperfect information about the drift of technology growth renders imprecise the calculation of potential and thus reduces the benefit of responding to the asset price gap. A policy that responds to the level of asset prices which does not take into account changes in potential tends to be welfare reducing.--Publisher's description.
Author | : Stephen Giovanni Cecchetti |
Publisher | : Centre for Economic Policy Research |
Total Pages | : 164 |
Release | : 2000 |
Genre | : Business & Economics |
ISBN | : 9781898128533 |
Concludes the role of asset prices in monetary policy is one of the most important, and difficult, questions confronting central banks.
Author | : B. Sailesh Ramamurtie |
Publisher | : |
Total Pages | : 52 |
Release | : 1996 |
Genre | : Investment analysis |
ISBN | : |
Author | : William F. Sharpe |
Publisher | : Princeton University Press |
Total Pages | : 232 |
Release | : 2011-01-01 |
Genre | : Business & Economics |
ISBN | : 1400830184 |
In Investors and Markets, Nobel Prize-winning financial economist William Sharpe shows that investment professionals cannot make good portfolio choices unless they understand the determinants of asset prices. But until now asset-price analysis has largely been inaccessible to everyone except PhDs in financial economics. In this book, Sharpe changes that by setting out his state-of-the-art approach to asset pricing in a nonmathematical form that will be comprehensible to a broad range of investment professionals, including investment advisors, money managers, and financial analysts. Bridging the gap between the best financial theory and investment practice, Investors and Markets will help investment professionals make better portfolio choices by being smarter about asset prices. Based on Sharpe's Princeton Lectures in Finance, Investors and Markets presents a method of analyzing asset prices that accounts for the real behavior of investors. Sharpe makes this technique accessible through a new, one-of-a-kind computer program (available for free on his Web site, at http://www.stanford.edu/~wfsharpe/apsim/index.html) that enables users to create virtual markets, setting the starting conditions and then allowing trading until equilibrium is reached and trading stops. Program users can then analyze the final portfolios and asset prices, see expected returns, and measure risk. In addition to popularizing the most sophisticated form of asset-price analysis, Investors and Markets summarizes much of Sharpe's most important previous work and reflects a lifetime of thinking about investing by one of the leading minds in financial economics. Any serious investment professional will benefit from Sharpe's unique insights.
Author | : John H. Cochrane |
Publisher | : Princeton University Press |
Total Pages | : 560 |
Release | : 2009-04-11 |
Genre | : Business & Economics |
ISBN | : 1400829135 |
Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea--price equals expected discounted payoff--that captures the macro-economic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model--consumption based, CAPM, multifactor, term structure, and option pricing--is derived as a different specification of the discounted factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted payoff. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook, this book condenses and advances recent scholarship in financial economics.
Author | : Maximilian Wegener |
Publisher | : GRIN Verlag |
Total Pages | : 27 |
Release | : 2013-04-08 |
Genre | : Business & Economics |
ISBN | : 3656403198 |
Bachelor Thesis from the year 2013 in the subject Business economics - Investment and Finance, grade: 8.0, Maastricht University, language: English, abstract: According to the efficient market hypothesis there should not be an asset overvaluation. Nevertheless, bubbles appear from time to time in the real world. In a financial bubble, the price of a security deviates grossly from its fundamental intrinsic value (Watanabe, Takayasu & Takayasu, 2007). Fundamentals or fundamental value refer to economic variables such as discount rates or future cash flows (Siegel, 2003). Depending on the valuation technique one can define an asset’s intrinsic or fundamental value, based on economic variables and assumed growth. A financial bubble is defined as a price run-up, where an initial price rise generates positive expectations of higher future prices, which attracts new buyers that are rather interested in reaping profits by trading the assets than using its earnings capacity (Siegel, 2003). There is a long history of bubbles such as the 1720 South Sea bubble, 1929 the Great Crash, in the mid-1970s the REIT bubble, in 1987 the housing crash, in 1991 the banking crisis, in 2002 the NASDAQ technology bubble and just recently the housing bubble in the United States, just to name a few. This capstone assignment deals with the question of how investors should act in the case of asset overvaluation in financial markets. In particular, it tries to answer how investors should behave. The central question asks whether investors should step aside and wait until the bubble bursts, whether they should ride the bubble or trade against it. Of course, there is support for all three, albeit contradicting theories. The different trading and investment strategies are reviewed, thereby touching upon various asset bubbles, financial concepts and empirical evidence in the academia. Moreover, it is elaborated on positive feedback trading and rational speculations, as well as behavioral finance concepts such as herding or overconfidence. The remainder of this paper describes different concepts outlined in the empirical literature, starting with asset overvaluation, followed by the efficient market hypothesis and the random walk phenomenon. The role of arbitrage traders is explored, and their impact on efficient markets and bubbles discussed. A review of behavioral traits during bubbles and the impact of human behavior on asset prices is included. Further, there is an examination of mutual fund strategies and their success in exploiting profit opportunities during bubbles. Finally, it is summarized which arguments support each of the viewpoints.