Validating and Extending the Two-moment Capital Asset Pricing Model for Financial Time Series
| Author | : Serdar Neslihanoglu |
| Publisher | : |
| Total Pages | : 193 |
| Release | : 2014 |
| Genre | : Kalman filtering |
| ISBN | : |
Validating And Extending The Two Moment Capital Asset Pricing Model For Financial Time Series
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Multi-moment Asset Allocation and Pricing Models
| Author | : Emmanuel Jurczenko |
| Publisher | : Wiley |
| Total Pages | : 258 |
| Release | : 2006-10-02 |
| Genre | : Business & Economics |
| ISBN | : 0470057998 |
While mainstream financial theories and applications assume that asset returns are normally distributed and individual preferences are quadratic, the overwhelming empirical evidence shows otherwise. Indeed, most of the asset returns exhibit “fat-tails” distributions and investors exhibit asymmetric preferences. These empirical findings lead to the development of a new area of research dedicated to the introduction of higher order moments in portfolio theory and asset pricing models. Multi-moment asset pricing is a revolutionary new way of modeling time series in finance which allows various degrees of long-term memory to be generated. It allows risk and prices of risk to vary through time enabling the accurate valuation of long-lived assets. This book presents the state-of-the art in multi-moment asset allocation and pricing models and provides many new developments in a single volume, collecting in a unified framework theoretical results and applications previously scattered throughout the financial literature. The topics covered in this comprehensive volume include: four-moment individual risk preferences, mathematics of the multi-moment efficient frontier, coherent asymmetric risks measures, hedge funds asset allocation under higher moments, time-varying specifications of (co)moments and multi-moment asset pricing models with homogeneous and heterogeneous agents. Written by leading academics, Multi-moment Asset Allocation and Pricing Models offers a unique opportunity to explore the latest findings in this new field of research.
A New Model of Capital Asset Prices
| Author | : James W. Kolari |
| Publisher | : Springer Nature |
| Total Pages | : 326 |
| Release | : 2021-03-01 |
| Genre | : Business & Economics |
| ISBN | : 3030651975 |
This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.
A Generalized Higher-Moment Capital Asset Pricing Model, with Theoretical Implications and Legal Applications
| Author | : James Ming Chen |
| Publisher | : |
| Total Pages | : 87 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
The conventional capital asset pricing model (CAPM) has come under severe attack for its failure to reflect investor behavior. This paper describes financial decision-making under uncertainty in formal mathematical terms as a generalized higher-moment capital asset pricing model. It develops that model through the Taylor series expansion of the logarithm of expected financial returns. This mathematical expedient treats the conventional two-moment CAPM and a four-moment variant (expressed in terms of mean, variance, skewness, and kurtosis) as convenient, mentally tractable special cases of a generalized higher-moment model.This paper then explores the theoretical implications and legal applications of higher-moment asset pricing. In prospect theory, perhaps the best known expression of behavioral economics, a “fourfold pattern” of decisionmaking under uncertainty predicts risk-seeking behavior in particular circumstances. Skewness preference arises in a wide variety of economic settings. Diverse bodies of financial regulation address transactions that strongly resemble legalized gambling, ranging from prize-linked savings to initial public offerings. Over time, cycles of misperception of risk and return consistent with the “disposition effect” of behavioral finance generate systematic gaps between hypothetical investment returns and actual returns realized by investors.
Multifactor Models Regarding Intertemporal Capital Asset Pricing Model (ICAPM) Assumptions on European and US Market Data. Advancing the Capital Asset Pricing Model (CAPM)
| Author | : Arno Popanda |
| Publisher | : |
| Total Pages | : 32 |
| Release | : 2019-09-10 |
| Genre | : |
| ISBN | : 9783346035219 |
Seminar paper from the year 2018 in the subject Economics - Finance, grade: 1.7, University of Duisburg-Essen (Faculty of Business and Economics), language: English, abstract: The Capital Asset Pricing Model (CAPM), which is developed by Harry Markowitz, lacks on empirical validation and is not economically fully plausible. By only considering a single period within the CAPM, Merton tried to improve the model by implementing different intertemporal assumptions. This paper focuses on the analysis, if the lack of the CAPM can be improved by using the assumptions of the ICAPM and if the eight investigated models are in the sense of Merton's assumptions. The first chapter reviews a short explanation of the classical CAPM and his critics, followed by Merton's intertemporal CAPM and his assumptions in the next chapter. Additionally, there were models developed, trying to be economically plausible by considering the ICAPM main assumptions, which are presented in the second chapter. A different way to develop an empirical better fitting CAPM is by using empirical motivated state variables. Fama & French started to take this approach by developing the three-factor-model (FF3). A lot of researchers were influenced by the FF3 and made their own version of a multifactor model by implementing variables. Even Fama & French enhanced their three-factor-model by adding further variables. In the third section there is the forecasting power of the four ICAPM models and the four empirical motivated multifactor models on the US market data and on the European market data compared. Then follows an examination if these models can be determined in the sense of the ICAPM restrictions. The last chapter concludes the results.
Principles of the Capital Asset Pricing Model and the Importance in Firm Valuation
| Author | : Nadine Pahl |
| Publisher | : GRIN Verlag |
| Total Pages | : 77 |
| Release | : 2009-04 |
| Genre | : Business & Economics |
| ISBN | : 3640303350 |
Research Paper (undergraduate) from the year 2007 in the subject Business economics - Investment and Finance, grade: 1,0, University of Applied Sciences Berlin, course: Financial Management, language: English, abstract: In everything you do, or don't do, there is a chance that something will happen that you didn't count on. Risk is the potential for unexpected things to happen. Risk aversion is a common thing among almost all investors. Investors generally dislike uncertainty or risk and agree that a safe dollar is worth more than a risky one. Therefore, investors will have to be persuaded to take higher risk by the offer of higher returns. In this investment context, the additional compensation for taking on higher risk is a higher rate of return.Every investment has a risk element: The investor will always not be certainwhether the investment will be able to generate the required income. The degree of risk defers from industry to industry but also from company to company. It is not possible to eliminate the investment risk altogether but to reduce is. Nevertheless, often there remains a risky part. According to the degree of risk, the investor demands a corresponding rate of return that is, of course, higher than the rate of return of risk-free investments. Taking on a risk should be paid off. The Capital Asset Pricing Model (CAPM) is an economic model for valuing stocks, securities, derivatives and/or assets by relating risk and expected rate of return. CAPM is based on the idea that investors demand additional expected return if they are asked to accept additional risk.
Empirical Asset Pricing
| 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.
Application of Capital Asset Pricing (CAPM) and Arbitrage Pricing Theory (APT) Models in Athens Exchange Stock Market
| Author | : Eleftherios Giovanis |
| Publisher | : GRIN Verlag |
| Total Pages | : 94 |
| Release | : 2010-03-26 |
| Genre | : Business & Economics |
| ISBN | : 3640576799 |
Seminar paper from the year 2007 in the subject Business economics - Investment and Finance, grade: 90.0%, , language: English, abstract: This paper examines the estimating and forecasting performance of the different and various Generalized Autoregressive Conditional Heteroscedasticity-GARCH’s models in relation to Capital Asste Pricing Model (CAPM) model. We apply the CAPM model with ordinary least squares (OLS) method to investigate if an ARCH (Autoregressive Conditional Heteroscedasticity) is presented and we are trying to decide and to analyze which GARCH model is the most appropriate and the best fitted for the financial time series that we have chosen. We apply CAPM model in the financial time series of the share prices of Technology-Software Sector in Athens Exchange stock market for the period January 1st of 2002 to October 30th of 2007 for the enterprises “Unibrain” “MLS Informatics” and “Dionic” respectively , from April 2nd of 2002 to 30th October of 2007 for the enterprise “Compucon”, from August 2nd of 2002 to 30th October of 2007 for the enterprise “Centric”, and finally from February 2nd of 2004 to 30th October of 2007 for the enterprise “Ilyda”. Additionally, we apply roiling regressions, where the full programming routines in EVIEWS and MATLAB are described detailed. We conclude that the slope β coefficient of CAPM model is not constant through the time period of rolling regressions we apply. In the final part we examine a simple Arbitrage Pricing Theory (APT) model.
An Empirical Test of the "Capital Asset Pricing Modell" (CAPM) on Current Stock Data
| Author | : Lucas Ammelung |
| Publisher | : |
| Total Pages | : 62 |
| Release | : 2020-12-30 |
| Genre | : |
| ISBN | : 9783346338099 |
Bachelor Thesis from the year 2020 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, Munich University of Applied Sciences, language: English, abstract: The goal of this study is thus to determine the best available asset pricing model in Germany and whether the use of pre-existing datasets, with the factors already calculated, brings results as accurate as a custom dataset. This is relevant in Germany as the CAPM is still the most commonly used way to compute the cost of equity with 34% of companies using it. Another 16% of companies are using asset pricing models with additional risk factors. To determine the answer to this, this study will look into the aforementioned three most commonly used models: the CAPM, the Fama and French three-factor model and the Carhart four-factor model. After explaining the background and functioning of the CAPM, this study will show the flaws within the model and how these flaws led to extensions of the CAPM. Each model will then be statistically analyzed with three distinct sets of data. Two of these are publicly available, while the last has been calculated for this study. Lastly, to understand how the difference in data used can influence the results from asset pricing models, the runtime and underlying factor of datasets will be modified, re-analyzed and compared to the initial results.
Multi-Moments Method for Portfolio Management
| Author | : Yannick Malevergne |
| Publisher | : |
| Total Pages | : 66 |
| Release | : 2002 |
| Genre | : |
| ISBN | : |
We use a new set of consistent measures of risks, in terms ofthe semi-invariants of pdf's, such that the centered moments and the cumulants of the portfolio distribution of returns that put more emphasis on the tail the distributions. We derive generalized efficient frontiers, based on these novel measures of risks and present the generalized CAPM, both in the cases of homogeneous and heterogeneous markets. Then, using a family of modified Weibull distributions, encompassing both sub-exponentials and super-exponentials, to parameterize the marginal distributions of asset returns and their natural multivariate generalizations, we offer exact formulas for the moments and cumulants of the distribution of returns of a portfolio made of an arbitrary composition of these assets. Using combinatorial and hypergeometric functions, we are in particular able to extend previous results to the case where the exponents of the Weibull distributions are different from asset to asset and in the presence of dependence between assets. In this parameterization, we treat in details the problem of risk minimization using the cumulants as measures of risks for a portfolio made of two assets and compare the theoreticalpredictions with direct empirical data. Our extended formulasenable us to determine analytically the conditions under which it is possible to quot;have your cake and eat it tooquot;, i.e., toconstruct a portfolio with both larger return and smaller quot;larger risksquot.
