Essays On The Specification Testing For Dynamic Asset Pricing Models
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Essays On The Specification Testing For Dynamic Asset Pricing Models
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Author : Jaeho Yun
language : en
Publisher:
Release Date : 2009
Essays On The Specification Testing For Dynamic Asset Pricing Models written by Jaeho Yun 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.
This dissertation consists of three essays on the subjects of specification testing on dynamic asset pricing models. In the first essay (with Yongmiao Hong), "A Simulation Test for Continuous-Time Models," we propose a simulation method to implement Hong and Li's (2005) transition density-based test for continuous-time models. The idea is to simulate a sequence of dynamic probability integral transforms, which is the key ingredient of Hong and Li's (2005) test. The proposed procedure is generally applicable whether or not the transition density of a continuous-time model has a closed form and is simple and computationally inexpensive. A Monte Carlo study shows that the proposed simulation test has very similar sizes and powers to the original Hong and Li's (2005) test. Furthermore, the performance of the simulation test is robust to the choice of the number of simulation iterations and the number of discretization steps between adjacent observations. In the second essay (with Yongmiao Hong), "A Specification Test for Stock Return Models," we propose a simulation-based specification testing method applicable to stochastic volatility models, based on Hong and Li (2005) and Johannes et al. (2008). We approximate a dynamic probability integral transform in Hong and Li' s (2005) density forecasting test, via the particle filters proposed by Johannes et al. (2008). With the proposed testing method, we conduct a comprehensive empirical study on some popular stock return models, such as the GARCH and stochastic volatility models, using the S&P 500 index returns. Our empirical analysis shows that all models are misspecified in terms of density forecast. Among models considered, however, the stochastic volatility models perform relatively well in both in- and out-of-sample. We also find that modeling the leverage effect provides a substantial improvement in the log stochastic volatility models. Our value-at-risk performance analysis results also support stochastic volatility models rather than GARCH models. In the third essay (with Yongmiao Hong), "Option Pricing and Density Forecast Performances of the Affine Jump Diffusion Models: the Role of Time-Varying Jump Risk Premia," we investigate out-of-sample option pricing and density forecast performances for the affine jump diffusion (AJD) models, using the S&P 500 stock index and the associated option contracts. In particular, we examine the role of time-varying jump risk premia in the AJD specifications. For comparison purposes, nonlinear asymmetric GARCH models are also considered. To evaluate density forecasting performances, we extend Hong and Li's (2005) specification testing method to be applicable to the famous AJD class of models, whether or not model-implied spot volatilities are available. For either case, we develop (i) the Fourier inversion of the closed-form conditional characteristic function and (ii) the Monte Carlo integration based on the particle filters proposed by Johannes et al. (2008). Our empirical analysis shows strong evidence in favor of time-varying jump risk premia in pricing cross-sectional options over time. However, for density forecasting performances, we could not find an AJD specification that successfully reconcile the dynamics implied by both time-series and options data.
Empirical Dynamic Asset Pricing
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Author : Kenneth J. Singleton
language : en
Publisher: Princeton University Press
Release Date : 2009-12-13
Empirical Dynamic Asset Pricing written by Kenneth J. Singleton and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-12-13 with Business & Economics categories.
Written by one of the leading experts in the field, this book focuses on the interplay between model specification, data collection, and econometric testing of dynamic asset pricing models. The first several chapters provide an in-depth treatment of the econometric methods used in analyzing financial time-series models. The remainder explores the goodness-of-fit of preference-based and no-arbitrage models of equity returns and the term structure of interest rates; equity and fixed-income derivatives prices; and the prices of defaultable securities. Singleton addresses the restrictions on the joint distributions of asset returns and other economic variables implied by dynamic asset pricing models, as well as the interplay between model formulation and the choice of econometric estimation strategy. For each pricing problem, he provides a comprehensive overview of the empirical evidence on goodness-of-fit, with tables and graphs that facilitate critical assessment of the current state of the relevant literatures. As an added feature, Singleton includes throughout the book interesting tidbits of new research. These range from empirical results (not reported elsewhere, or updated from Singleton's previous papers) to new observations about model specification and new econometric methods for testing models. Clear and comprehensive, the book will appeal to researchers at financial institutions as well as advanced students of economics and finance, mathematics, and science.
Essays On Estimating And Testing Asset Pricing Models
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Author :
language : en
Publisher:
Release Date : 2009
Essays On Estimating And Testing Asset Pricing Models written by 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.
Essays In Asset Pricing
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Author : Michael Shane O'Doherty
language : en
Publisher:
Release Date : 2011
Essays In Asset Pricing written by Michael Shane O'Doherty and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with Stock price forecasting categories.
Using a variety of test portfolios, the optimal pool of models consistently outperforms the best individual model on both statistical and economic grounds.
Essays On Empirical Asset Pricing
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Author : Xiang Zhang
language : en
Publisher:
Release Date : 2013
Essays On Empirical Asset Pricing written by Xiang Zhang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
This thesis consists of three essays on empirical asset pricing around three themes: evaluating linear factor asset pricing models by comparing their misspecified measures, understanding the long-run risk on consumption-leisure to investigate their pricing performances on cross-sectional returns, and evaluating conditional asset pricing models by using the methodology of dynamic cross-sectional regressions. The first chapter is ̀̀Comparing Asset Pricing Models: What does the Hansen-Jagannathan Distance Tell Us?''. It compares the relative performance of some important linear asset pricing models based on the Hansen-Jagannathan (HJ) distance using data over a long sample period from 1952-2011 based on U.S. market. The main results are as follows: first, among return-based linear models, the Fama-French (1993) five-factor model performs best in terms of the normalized pricing errors, compared with the other candidates. On the other hand, the macro-factor model of Chen, Roll, and Ross (1986) five-factor is not able to explain industry portfolios: its performance is even worse than that of the classical CAPM. Second, the Yogo (2006) non-durable and durable consumption model is the least misspecified, among consumption-based asset pricing models, in capturing the spread in industry and size portfolios. Third, the Lettau and Ludvigson (2002) scaled consumption-based CAPM (C-CAPM) model obtains the smallest normalized pricing errors pricing gross and excess returns on size portfolios, respectively, while Santos and Veronesi (2006) scaled C-CAPM model does better in explain the return spread on portfolios of U.S. government bonds. The second chapter (̀̀Leisure, Consumption and Long Run Risk: An Empirical Evaluation'') uses a long-run risk model with non-separable leisure and consumption, and studies its ability to price equity returns on a variety of portfolios of U.S. stocks using data from 1948-2011. It builds on early work by Eichenbaum et al. (1988) that explores the empirical properties of intertemporal asset pricing models where the representative agent has utility over consumption and leisure. Here we use the framework in Uhlig (2007) that allows for a stochastic discount factor with news about long-run growth in consumption and leisure. To evaluate our long-run model, we assess its performance relative to standard asset pricing models in explaining the cross-section of returns across size, industry and value-growth portfolios. We find that the long-run consumption-leisure model cannot be rejected by the J-statistic and it does better than the standard C-CAPM, the Yogo durable consumption and Fama-French three-factor models. We also rank the normalized pricing errors using the HJ distance: our model has a smaller HJ distance than other candidate models. Our paper is the first, as far as we are aware, to use leisure data with adjusted working hours as a measure of leisure i.e., defined as the difference between a fixed time endowment and the observable hours spent on working, home production, schooling, communication, and personal care (Yang (2010)). The third essay: ̀̀Empirical Evaluation of Conditional Asset Pricing Models: An Economic Perspective'' uses dynamic Fama-MacBeth cross-sectional regressions and tests the performance of several important conditional asset pricing models when allowing for time-varying price of risk. It compares the performance of conditional asset pricing models, in terms of their ability to explain the cross-section of returns across momentum, industry, value-growth and government bond portfolios. We use the new methodology introduced by Adrian et al. (2012). Our main results are as follows: first we find that the Lettau and Ludvigson (2001) conditional model does better than other models in explaining the cross-section of momentum and value-growth portfolios. Second we find that the Piazessi et al. (2007) consumption model does better than others in pricing the cross-section of industry portfolios. Finally, we find that in the case of the cross-section of risk premia on U.S. government bond portfolios the conditional model in Santos and Veronesi (2006) outperforms other candidate models. Overall, however, the Lettau and Ludvigson (2001) model does better than other candidate models. Our main contributions here is using a recently developed method of dynamic Fama-MacBeth regressions to evaluate the performance of leading conditional CAPM (C-CAPM) models in a common set of test assets over the time period from 1951-2012.
Essays On Dynamic Allocation And Pricing
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Author : Pamela Hsuan-Lo Chang
language : en
Publisher:
Release Date : 1991
Essays On Dynamic Allocation And Pricing written by Pamela Hsuan-Lo Chang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1991 with categories.
Essays In Dynamic General Equilibrium Theory
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Author : Alessandro Citanna
language : en
Publisher: Springer Science & Business Media
Release Date : 2006-01-11
Essays In Dynamic General Equilibrium Theory written by Alessandro Citanna and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-01-11 with Business & Economics categories.
In the area of dynamic economics, David Cass’s work has spawned a number of important lines of research, including the study of dynamic general equilibrium theory, the concept of sunspot equilibria, and general equilibrium theory when markets are incomplete. Based on these contributions, this volume contains new developments in the field, written by Cass's students and co-authors.
Three Essays On Dynamic Asset Pricing Microform
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Author : Fouda, Henri
language : en
Publisher: Montréal : Service des archives, Université de Montréal, Section Microfilm
Release Date : 1995
Three Essays On Dynamic Asset Pricing Microform written by Fouda, Henri and has been published by Montréal : Service des archives, Université de Montréal, Section Microfilm this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995 with Capital assets pricing model categories.
Three Essays On Dynamic Asset Pricing
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Author : Henri Fouda
language : en
Publisher:
Release Date : 1995
Three Essays On Dynamic Asset Pricing written by Henri Fouda and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995 with Capital assets pricing model categories.
Reformulated Asset Pricing Models
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Author : Zhongzhi Lawrence He
language : en
Publisher:
Release Date : 2002
Reformulated Asset Pricing Models written by Zhongzhi Lawrence He and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with Assets (Accounting) categories.
The dissertation consists of three essays that address both the theoretical and empirical aspects of characteristics-based asset pricing models. In the first essay, we reformulate a characteristics-based model to demonstrate why firm characteristics explain cross-sectional expected returns. The model is based on an economic setting where the fully-rational group of investors adopts contrarian strategies against the quasi-rational group of investors. The key result is a parsimonious cross-sectional equation that is not only specified by the risk-return relationship, but is also determined by both market-wide and firm-specific adjustments. We offer consistent explanations for the behaviors of growth and value stocks, and also for the prominent cross-sectional patterns such as book-to-market, earnings-to-price, and size effects. In the second essay, we reformulate an asset pricing model where liquidity is an endogenous determinant of expected returns. The key result is that a firm's expected return can be explained by three components: an interest rate term that includes a market-average expected liquidity, a market risk term determined by a weighted average consumption beta, and a firm-specific term determined by a linear deviation of the firm's expected liquidity from that of the market portfolio. We test various empirical implications derived from the theory and find that the expected liquidity effect and the size effect are significant, but the risk-return relationship is flat in the Canadian market. In the third essay, we propose a characteristics-based asset-pricing model from an ex post perspective. We examine the widely used empirical procedure that groups stocks into portfolios by sorting firm characteristics, showing that the exhibited systematic patterns may be largely due to the way of forming portfolios. We design a new portfolio approach and perform robustness tests for the cross-sectional relationships between risk, liquidity, and returns using Canadian stock market data. We find a strong liquidity-return relationship and a significant risk-return relationship when conditioning on realized returns. Both the risk effect and the liquidity effect are highly robust across different portfolio formations.