Equilibrium Asset Pricing Models and Predictability of Excess Returns
Author | : M. Hashem Pesaran |
Publisher | : |
Total Pages | : 62 |
Release | : 1993 |
Genre | : Equilibrium (Economics) |
ISBN | : |
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Author | : M. Hashem Pesaran |
Publisher | : |
Total Pages | : 62 |
Release | : 1993 |
Genre | : Equilibrium (Economics) |
ISBN | : |
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 | : Christian Schlag |
Publisher | : |
Total Pages | : |
Release | : 2020 |
Genre | : |
ISBN | : |
Many modern macro finance models imply that excess returns on arbitrary assets are predictable via the price-dividend ratio and the variance risk premium of the aggregate stock market. We propose a simple empirical test for the ability of such a model to explain the cross-section of expected returns by sorting stocks based on the sensitivity of expected returns to these quantities. Models with only one uncertainty-related state variable, like the habit model or the long-run risks model, cannot pass this test. However, even extensions with more state variables mostly fail. We derive conditions under which models would be able to produce expected return patterns in line with the data and discuss various examples.
Author | : Wolfgang Drobetz |
Publisher | : Springer Science & Business Media |
Total Pages | : 346 |
Release | : 2013-06-29 |
Genre | : Business & Economics |
ISBN | : 3663085295 |
Wolfgang Drobetz provides empirical evidence on the time variation of expected stock returns over the stages of the business cycle.
Author | : Jian Chen |
Publisher | : Springer |
Total Pages | : 163 |
Release | : 2018-04-10 |
Genre | : Business & Economics |
ISBN | : 9811074283 |
This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
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 | : |
Publisher | : |
Total Pages | : |
Release | : 2005 |
Genre | : |
ISBN | : |
This paper presents a simple rational expectations model of intertemporal asset pricing. It shows that heterogeneous risk aversion of investors is likely to generate declining aggregate relative risk aversion. This leads to predictability of asset returns and high and persistent volatility. Stock market crashes may be observed if relative risk aversion differs strongly across investors. Then aggregate relative risk aversion may sharply increase given a small impairment in fundamentals so that asset prices may strongly decline. Changes in aggregate relative risk aversion may also lead to resistance and support levels as used in technical analysis. For numerical illustration we propose an analytical asset price formula. -- Aggregate relative risk aversion ; Equilibrium asset price processes ; Excess Volatility ; Return predictability ; Stock market crashes
Author | : Murray Carlson |
Publisher | : |
Total Pages | : 55 |
Release | : 2015 |
Genre | : Equilibrium (Economics) |
ISBN | : |
We use a general equilibrium model as a laboratory for generating predictable excess returns and for assessing the properties of the estimated consumption/portfolio rules, under both the empirical and the true dynamics of excess returns. The advantage of this approach, relative to the existing literature, is that the equilibrium model delineates the precise nature of the risk/return trade-off within an optimizing setting that endogenizes return predictability. In the experiments that we consider, the estimation issues are so severe that simple unconditional consumption and portfolio rules actually outperform (in a utility cost sense) both simple and bias-corrected empirical estimates of conditionally optimal policies.