A Cross Sectional Test Of A Production Based Asset Pricing Model
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A Cross Sectional Test Of A Production Based Asset Pricing Model
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Author : John H. Cochrane
language : en
Publisher:
Release Date : 1996
A Cross Sectional Test Of A Production Based Asset Pricing Model written by John H. Cochrane and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996 with categories.
This paper tests a factor pricing model for stock returns. The factors are returns on physical investment, inferred from investment data via a production function. The tests examine the model's ability to explain the variation in expected returns across assets and over time. The model is not rejected. It performs about as well as the CAPM and the Chen, Roll and Ross factor model, and it performs substantially better than a simple consumption-based model. In comparison tests, the investment return factors drive out all the other models. The paper also provides an easy technique for estimating and testing dynamic, conditional asset pricing models. All one has to do is include factors and returns scaled by instruments in an unconditional estimate. This procedure imposes none of the usual restrictions on conditional moments, and does not require prewhitened or orthogonalized factors.
A Cross Sectional Test Of A Production Based Asset Pricing Model
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Author : John H. Cochrane
language : en
Publisher:
Release Date : 2010
A Cross Sectional Test Of A Production Based Asset Pricing Model written by John H. Cochrane and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
This paper tests a factor pricing model for stock returns. The factors are returns on physical investment, inferred from investment data via a production function. The tests examine the model's ability to explain the variation in expected returns across assets and over time. The model is not rejected. It performs about as well as the CAPM and the Chen, Roll and Ross factor model, and it performs substantially better than a simple consumption-based model. In comparison tests, the investment return factors drive out all the other models. The paper also provides an easy technique for estimating and testing dynamic, conditional asset pricing models. All one has to do is include factors and returns scaled by instruments in an unconditional estimate. This procedure imposes none of the usual restrictions on conditional moments, and does not require prewhitened or orthogonalized factors.
A Cross Sectional Test Of An Investment Based Asset Pricing Model
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Author : John H. Cochrane
language : en
Publisher:
Release Date : 2009
A Cross Sectional Test Of An Investment Based Asset Pricing Model written by John H. Cochrane and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
I examine a factor pricing model for stock returns. The factors are returns on physical investment, inferred from investment data via a production function. I examine the model's ability to explain variation in expected returns across asset and over time. The model is not rejected. It performs about as well as the CAPM and the Chen, Roll, and Ross factor model, and it performs substantially better than a simple consumption-based model. I also provide an easy technique for estimating and testing dynamic, conditional asset pricing models--one simply includes factors and returns scaled by instruments in an unconditional estimate--and for comparing such models.
Production Based Asset Pricing
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Author : Zhi Wang
language : en
Publisher:
Release Date : 2000
Production Based Asset Pricing written by Zhi Wang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.
This paper empirically tests the production-based asset pricing model (PCAPM) using industry-level data. Specifically, I examine the pricing relationship between physical investment returns and equity returns by testing the hypothesis (spanning assumption) that the payoff space of physical investment spans the payoff space of financial securities. Instead of following the traditional approach of testing a linear physical investment factor pricing model, I propose a new testing procedure based on entropic principles and no-arbitrage constraints. The proposed nonparametric method recovers and compares the state price densities for physical investment returns and equity returns. The new testing procedure has two main advantages over the traditional approach. First, the new method is consistent with no-arbitrage conditions while the traditional approach leads to a stochastic discount factor that may take negative values. Second, the new method alleviates the joint hypothesis test problem suffered by the traditional approach. I apply the proposed procedure to the following six industries: mining, construction, manufacturing, transportation, communication, and public utilities. The empirical results show that the state price density recovered from physical investment returns is able to correctly price the corresponding equity returns. This provides supporting evidence that the spanning assumption holds at the cross-industry level. Furthermore, this study highlights the fact that physical capital investment conveys important information for pricing financial securities. Hence, to explain both the time series and the cross-sectional variations in equity returns, it is useful to develop models that explicitly address the impact of key production characteristics on financial asset pricing.
Empirical Cross Sectional Asset Pricing
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Author : Stefan Nagel
language : en
Publisher:
Release Date : 2012
Empirical Cross Sectional Asset Pricing written by Stefan Nagel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Assets (Accounting) categories.
I review recent research efforts in the area of empirical cross-sectional asset pricing. I start by summarizing the evidence on cross-sectional return predictability and the failure of standard (consumption) CAPM models and their conditional versions to explain these predictability patterns. One response in part of the recent literature is to focus on ad-hoc factor models, which summarize the cross-section of expected returns in parsimonious form, or on production-based approaches, which suggest links between firm characteristics and expected returns. Without imposing restrictions on investor preferences and beliefs, neither one of these two approaches can answer the question why investors price assets the way they do. Within the rational expectations paradigm, recent research that imposes such restrictions has focused on the ICAPM, long-run risks models, as well as frictions and liquidity risk. Approaches based on investor sentiment have focused on the development of empirical proxies for sentiment and for the limits to arbitrage that allow sentiment to affect prices. Empirical work that considers learning and adaptation of investors has worked with out-of-sample tests of cross-sectional predictability.
Empirical Asset Pricing
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Author : Wayne Ferson
language : en
Publisher: MIT Press
Release Date : 2019-03-26
Empirical Asset Pricing written by Wayne Ferson and has been published by MIT Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-03-26 with Business & Economics categories.
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.
An Empirical Examination Of Production Based Asset Pricing
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Author : Phillip A. Braun
language : en
Publisher:
Release Date : 1999
An Empirical Examination Of Production Based Asset Pricing written by Phillip A. Braun and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.
This study tests the production based asset pricing model. The paper proceeds by first theoretically deriving an asset pricing model from a firm's production-investment decision following Cochrane (1991). To do this it is necessary to assume specific functional forms for the firm's production technology, as well as a representative consumer's utility function. Then, using aggregate data for investment expenditures and real gross domestic expenditures, I test whether this asset pricing model can price alternative sets of financial securities using Hansen's (1982) MMG. The main conclusions of this study are that the particular production technologies and asset pricing model assumed are not compatible with the data. The most interesting finding is that the problems documented for the consumption based asset pricing models also plague the production based model. This result is very important because the original expectation for the production based model was that the relationship between firms' investment expenditures and asset returns would be stronger than that observed for consumption expenditures. The findings of this study do not support this expectation. In fact, the results indicate that the production based model actually fits the data worse than the consumption based model.
Tests Of The Conditional Asset Pricing Model
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Author : Stuart Hyde
language : en
Publisher:
Release Date : 2017
Tests Of The Conditional Asset Pricing Model written by Stuart Hyde and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
We investigate the relationship between consumption and the term structure using U.K. interest rate data. We demonstrate that the term structure contains information about future economic activity as implied by the benchmark time separable power utility consumption based capital asset pricing model (C-CAPM) since the yield spread has forecasting power for future consumption growth. Further, we analyze the ability of this benchmark and two alternative models which adopt utility functions characterized by non-separability, namely, the extension to the habit formation model of Campbell and Cochrane (1999) proposed by Wachter (2006) and the housing C-CAPM proposed by Piazzesi et al. (2007). Our findings are supportive of the habit formation specification of Wachter (2006), other models fail to yield economically plausible parameter values.
Financial Markets And The Real Economy
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Author : John H. Cochrane
language : en
Publisher: Now Publishers Inc
Release Date : 2005
Financial Markets And The Real Economy written by John H. Cochrane and has been published by Now Publishers Inc this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Business & Economics categories.
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Production Based Asset Pricing
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Author : John H. Cochrane
language : en
Publisher:
Release Date : 1988
Production Based Asset Pricing written by John H. Cochrane and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1988 with Assets (Accounting) categories.
This paper exploits producer's first order conditions to link asset prices to data on investment, output, etc. through marginal rates of transformation, just as consumer's first order conditions are commonly used to link asset prices to consumption data or proxies through marginal rates of substitution. It presents simulation economies analogous to the consumption based models of Mehra and Prescott (1985) and Backus, Gregory and Ziri (1986) that capture the size of the equity premium and the size and cyclical timing of the forward rate term premium.