Consumption Based Asset Pricing With Higher Cumulants
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| Author | : Ian Martin (Assistant Professor of Finance (2008-present)) |
| Publisher | : |
| Total Pages | : |
| Release | : 2010 |
| Genre | : Assets (Accounting) |
| ISBN | : |
I extend the Epstein-Zin-lognormal consumption-based asset-pricing model to allow for general i.i.d. consumption growth. Information about the higher moments--equivalently, cumulants--of consumption growth is encoded in the cumulant-generating function. I apply the framework to economies with rare disasters, and argue that the importance of such disasters is a double-edged sword: parameters that govern the frequency and sizes of rare disasters are critically important for asset pricing, but extremely hard to calibrate. I show how to sidestep this issue by using observable asset prices to make inferences that are robust to the details of the underlying consumption process -- National Bureau of Economic Research web site.
| Author | : Ian Martin |
| Publisher | : |
| Total Pages | : 39 |
| Release | : 2010 |
| Genre | : Assets (Accounting) |
| ISBN | : |
I extend the Epstein-Zin-lognormal consumption-based asset-pricing model to allow for general i.i.d. consumption growth. Information about the higher moments--equivalently, cumulants--of consumption growth is encoded in the cumulant-generating function. I apply the framework to economies with rare disasters, and argue that the importance of such disasters is a double-edged sword: parameters that govern the frequency and sizes of rare disasters are critically important for asset pricing, but extremely hard to calibrate. I show how to sidestep this issue by using observable asset prices to make inferences that are robust to the details of the underlying consumption process.
| Author | : Douglas T. Breeden |
| Publisher | : |
| Total Pages | : |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Following Part 1 of this article, which reviews late-1970s to 1990s classic derivations and tests of the consumption capital asset pricing model, here in Part 2 we review more recent developments, some of which are based on utility functions with non-time-separable preferences. Important second-generation consumption-based asset pricing advances are also reviewed, including models with habit formation and long-run risk. These models give large cyclical changes in relative risk aversion and risk premiums as well as lagged impacts of aggregate consumption changes on risk premiums. We review asset pricing with rare disasters and models focused on consumer spending on durables and real estate, as well as the fraction of spending financed by labor income. The second-generation models discussed have more free parameters and fit the empirical data better than did the first-generation consumption-based asset pricing models.
| Author | : Kerry Back |
| Publisher | : Oxford University Press |
| Total Pages | : 745 |
| Release | : 2017 |
| Genre | : Business & Economics |
| ISBN | : 0190241144 |
Today all would agree that Mexico and the United States have never been closer--that the fates of the two republics are intertwined. Mexico has become an intimate part of life in almost every community in the United States, through immigration, imported produce, business ties, or illegal drugs. It is less a neighbor than a sibling; no matter what our differences, it is intricately a part of our existence. In the fully updated second edition of Mexico: What Everyone Needs to Know(R), Roderic Ai Camp gives readers the most essential information about our sister republic to the south. Camp organizes chapters around major themes--security and violence, economic development, foreign relations, the colonial heritage, and more. He asks questions that take us beyond the headlines: Why does Mexico have so much drug violence? What was the impact of the North American Free Trade Agreement? How democratic is Mexico? Who were Benito Juarez and Pancho Villa? What is the PRI (the Institutional Revolutionary Party)? The answers are sometimes surprising. Despite ratification of NAFTA, for example, Mexico has fallen behind Brazil and Chile in economic growth and rates of poverty. Camp explains that lack of labor flexibility, along with low levels of transparency and high levels of corruption, make Mexico less competitive than some other Latin American countries. The drug trade, of course, enhances corruption and feeds on poverty; approximately 450,000 Mexicans now work in this sector. Brisk, clear, and informed, Mexico: What Everyone Needs To Know(R) offers a valuable primer for anyone interested in the past, present, and future of our neighbor to the South. Links to video interviews with prominent Mexicans appear throughout the text. The videos can be accessed at through The Oxford Research Encyclopedia of Latin American History at http: //latinamericanhistory.oxfordre.com/page/videos/
| Author | : John Y. Campbell |
| Publisher | : Princeton University Press |
| Total Pages | : 476 |
| Release | : 2017-10-31 |
| Genre | : Business & Economics |
| ISBN | : 0691160805 |
From the field's leading authority, the most authoritative and comprehensive advanced-level textbook on asset pricing In Financial Decisions and Markets, John Campbell, one of the field’s most respected authorities, provides a broad graduate-level overview of asset pricing. He introduces students to leading theories of portfolio choice, their implications for asset prices, and empirical patterns of risk and return in financial markets. Campbell emphasizes the interplay of theory and evidence, as theorists respond to empirical puzzles by developing models with new testable implications. The book shows how models make predictions not only about asset prices but also about investors’ financial positions, and how they often draw on insights from behavioral economics. After a careful introduction to single-period models, Campbell develops multiperiod models with time-varying discount rates, reviews the leading approaches to consumption-based asset pricing, and integrates the study of equities and fixed-income securities. He discusses models with heterogeneous agents who use financial markets to share their risks, but also may speculate against one another on the basis of different beliefs or private information. Campbell takes a broad view of the field, linking asset pricing to related areas, including financial econometrics, household finance, and macroeconomics. The textbook works in discrete time throughout, and does not require stochastic calculus. Problems are provided at the end of each chapter to challenge students to develop their understanding of the main issues in financial economics. The most comprehensive and balanced textbook on asset pricing available, Financial Decisions and Markets is an essential resource for all graduate students and practitioners in finance and related fields. Integrated treatment of asset pricing theory and empirical evidence Emphasis on investors’ decisions Broad view linking the field to financial econometrics, household finance, and macroeconomics Topics treated in discrete time, with no requirement for stochastic calculus Solutions manual for problems available to professors
| Author | : Dirk Krueger |
| Publisher | : |
| Total Pages | : 28 |
| Release | : 2007 |
| Genre | : Assets (Accounting) |
| ISBN | : |
We evaluate the asset pricing implications of a class of models in which risk sharing is imperfect because of limited enforcement of intertemporal contracts. Lustig (2004) has shown that in such a model the asset pricing kernel can be written as a simple function of the aggregate consumption growth rate and the growth rate of consumption of the set of households that do not face binding enforcement constraints. These unconstrained households have lower consumption growth rates than all other households in the economy. We use household data on consumption growth from the U.S. Consumer Expenditure Survey to identify unconstrained households, to estimate the pricing kernel implied by these models and evaluate their performance in pricing aggregate risk. We find that for high values of the relative risk aversion coefficient, the limited enforcement pricing kernel generates a market price of risk that is substantially closer to the data than the one obtained using the standard complete markets asset pricing kernel.
| Author | : John Hunter |
| Publisher | : |
| Total Pages | : 19 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
In this paper we extend the time series analysis to the panel frame-work to test the C-CAPM driven by wealth references for developed countries. Speciጿically, we focus on a linearised form of the Consumption-based CAPM in a pooled cross section panel model with two-way error components. The empirical fiijndings of this two-factor model with various speciጿications all indicate that there is signiጿicant unobserved heterogeneity captured by cross-country ጿixed effects when consumption growth is treated as a common factor, of which the average risk aversion coefficient is 4.285. However, the cross-sectional impact of home consumption growth varies dramatically over the countries, where unobserved heterogeneity of risk aversion can also be addressed by random effects.
| Author | : Hossein B. Kazemi |
| Publisher | : |
| Total Pages | : 16 |
| Release | : 1986 |
| Genre | : |
| ISBN | : |
| Author | : Stylianos Perrakis |
| Publisher | : Springer |
| Total Pages | : 294 |
| Release | : 2019-05-03 |
| Genre | : Business & Economics |
| ISBN | : 3030115909 |
This book illustrates the application of the economic concept of stochastic dominance to option markets and presents an alternative option pricing paradigm to the prevailing no arbitrage simultaneous equilibrium in the frictionless underlying and option markets. This new methodology was developed primarily by the author, working independently or jointly with other co-authors, over the course of more than thirty years. Among others, it yields the fundamental Black-Scholes-Merton option value when markets are complete, presents a new approach to the pricing of rare event risk, and uncovers option mispricing that leads to tradeable strategies in the presence of transaction costs. In the latter case it shows how a utility-maximizing investor trading in the market and a riskless bond, subject to proportional transaction costs, can increase his/her expected utility by overlaying a zero-net-cost portfolio of options bought at their ask price and written at their bid price, irrespective of the specific form of the utility function. The book contains a unified presentation of these methods and results, making it a highly readable supplement for educators and sophisticated professionals working in the popular field of option pricing. It also features a foreword by George Constantinides, the Leo Melamed Professor of Finance at the Booth School of Business, University of Chicago, USA, who was a co-author in several parts of the book.
| 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
