Multifactor Asset Pricing Model
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Multifactor Assets Pricing Model
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Author : Khushboo Sagar
language : en
Publisher:
Release Date : 2020
Multifactor Assets Pricing Model written by Khushboo Sagar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
Generous consideration has been pursued to the empirical testing of multi factor assets pricing models. However, literature provides mixed kind of evidences in the support of multi factor assets pricing model. This study reviews 20 research articles based on multi factor assets pricing model and examines 25 research papers based on the empirically testing of multi factor assets pricing model published during 2001 and 2018 to study the multi factor assets pricing model in the Indian context as well as foreign context. CAPM is a popular normative model used by researchers to explain the relationship between risk and expected return of a risky asset which was developed by Sharpe (1964) and Lintner (1965). This model takes only one risk factor which is the excess market portfolio return (Market premium). Because of poor performance of CAPM in explaining realized returns, the Fama and French three factor asset pricing model (1993) was developed. Fama and French (1993) documented the size effect and the value effect that were not included in the CAPM, generally known as CAPM anomalies. Mark M. Carhart (1997) developed the Carhart four factor model. It is an extension of the FF three factor model with one another factor i.e. momentum factor effect for asset pricing of stocks. In view of the limitations of the earlier three-factor model, Fama and French five-factor asset pricing model (2014) was developed. Fama and French (2014) came with profitability pattern and investment pattern in average stock return along with the market premium, size premium and value premium. This paper may be an expedient source of information to the academics, financial analyst and researchers to understand the asset pricing model.
Multifactor Asset Pricing Model
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Author : Kok Foo Theang
language : en
Publisher:
Release Date : 2019
Multifactor Asset Pricing Model written by Kok Foo Theang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Numerous studies have shown that stock returns can be predicted over time with the multifactor asset pricing model based on the Arbitrage Pricing Theory (APT). However, the application of the multifactor asset pricing model in emerging markets remains debatable, owing to differences in the economic, cultural, and political structure. Using both the time-series regression approach and machine learning approach, this study finds that Fama-French profitability risk factor is important for describing aggregate stock market returns in Malaysia. Additionally, these market returns are positively correlated with the crude palm oil price and the Singapore stock market index. This study shall thus shed new light on the application of the multifactor asset pricing model in Malaysia.
Empirical Analysis Of Multifactor Asset Pricing Models A Comparison Of Us And Japanese Reits
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Author : Tim Perschbacher
language : en
Publisher: GRIN Verlag
Release Date : 2023-07-10
Empirical Analysis Of Multifactor Asset Pricing Models A Comparison Of Us And Japanese Reits written by Tim Perschbacher and has been published by GRIN Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-07-10 with Business & Economics categories.
Bachelor Thesis from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, , language: English, abstract: This study is concerned with an empirical analysis of asset pricing. More specifically, this paper examines whether multifactor asset pricing models are able to explain variation in REIT returns in the US and Japan. In addition to traditional multifactor models, an Alternative Four-Factor Model (AFF) was developed considering net profit margin as an additional risk factor. Thence, this paper seeks to provide valuable information for investors and fund managers regarding their indirect real estate investment selection. Using a sample period between July 1994 (US) / July 2011 (Japan) to December 2020, rigorous multiple-time-series regression is applied to calculate factor loadings for each risk factor and the corresponding alpha values of each model to evaluate their effectiveness in explaining variation and cross-section of REIT returns. Most studies on asset pricing models focus on size and value sorted portfolios as dependent variables. This paper broadens the approach with four other double sorted test portfolios to check the robustness of each single factor to explain return anomalies. Results show that market premium and size premium represent risk factors for US-REITs, whereas market premium and value premium are suitable risk factors for Japanese-REITs. The momentum factor does not capture risk and is insignificant in both markets. The study shows low correlations between traditional and REIT specific as well as between US and Japanese risk factors. This suggests that firstly risk factors are country specific and secondly that they are asset specific. Moreover, the Fama-French Three-Factor Model (FF3) clearly outperforms the CAPM, while the Carhart Four-Factor Model (CH4) marginally improves the explanatory power over the FF3. This is observed in both markets. Outcomes demonstrate that the Alternative Four-Factor Model (AAF) does not improve prediction power for returns of Japanese-REITs compared to the FF3 and CH4. On the contrary, results are ambiguous concerning US-REITs. While the additional risk factor, net profit margin, generates a negative return, the model is superior to the FF3 and CH4 in terms of explaining variation and cross-section of returns.
Multifactor Models Do Not Explain Deviations From The Capm
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Author : Archie Craig MacKinlay
language : en
Publisher:
Release Date : 1994
Multifactor Models Do Not Explain Deviations From The Capm written by Archie Craig MacKinlay and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with Capital categories.
A number of studies have presented evidence rejecting the validity of the Capital Asset Pricing Model (CAPM). This evidence has spawned research into possible explanations. These explanations can be divided into two main categories - the risk based alternatives and the nonrisk based alternatives. The risk based category includes multifactor asset pricing models developed under the assumptions of investor rationality and perfect capital markets. The nonrisk based category includes biases introduced in the empirical methodology, the existence of market frictions, or explanations arising from the presence of irrational investors. The distinction between the two categories is important for asset pricing applications such as estimation of the cost of capital. This paper proposes to distinguish between the two categories using ex ante analysis. A framework is developed showing that ex ante one should expect that CAPM deviations due to missing risk factors will be very difficult to statistically detect. In contrast, deviations resulting from nonrisk based sources will be easy to detect. Examination of empirical results leads to the conclusion that the risk based alternatives is not the whole story for the CAPM deviations. The implication of this conclusion is that the adoption of empirically developed multifactor asset pricing models may be premature.
Multifactor Models Regarding Intertemporal Capital Asset Pricing Model Icapm Assumptions On European And Us Market Data Advancing The Capital Asset Pricing Model Capm
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Author : Arno Popanda
language : en
Publisher: GRIN Verlag
Release Date : 2019-10-11
Multifactor Models Regarding Intertemporal Capital Asset Pricing Model Icapm Assumptions On European And Us Market Data Advancing The Capital Asset Pricing Model Capm written by Arno Popanda and has been published by GRIN Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-10-11 with Business & Economics categories.
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.
Choosing Factors In A Multifactor Asset Pricing Model When Returns Are Nonnormal
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Author : Johan Parmler
language : en
Publisher:
Release Date : 2008
Choosing Factors In A Multifactor Asset Pricing Model When Returns Are Nonnormal written by Johan Parmler and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
We use Bayesian techniques to select the factors in a multifactor asset pricing model when the assumption of normally distributed returns is relaxed. More precisely, we assume that asset returns are multivariate t-distributed. This setup allows us to capture the well known fat tail property of asset returns. Interest rates, premiums, returns on broadbased portfolios and macroeconomic variables are included in the set of factors. Data from both the US market and the Swedish market are investigated.
Evidence To Support Multifactor Asset Pricing Models
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Author : Supriya Maheshwari
language : en
Publisher:
Release Date : 2016
Evidence To Support Multifactor Asset Pricing Models written by Supriya Maheshwari and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
Emerging stock market returns have been extensively studied by academic community over the past two decades. However, there is still no consensus among the researchers and practitioners as to which asset pricing models should be used to explain returns in these markets. The basic objective of the study is to evaluate the power and performance of multi-factor asset pricing models (three and four factor model) over the traditional one factor CAPM, using the data from one of the fastest growing emerging market: India. The study using a large sample data of 470 listed stocks over a period of 16 years stretching from January 1997 to March 2013, evaluate the relevance of Fama and French three factor model as well as liquidity augmented four factor model in explaining the stock return variations in the Indian stock market. The study employs time series regression approach to examine the impact of market risk, size risk, value risk and liquidity risk on stock returns. The overall results of the study provide support to the multi-dimensional nature of risk and suggest the use of multi-factor asset pricing models for consideration in investment decisions. Both Fama and French three factor model and liquidity augmented four factor model were found to be superior than traditional one factor CAPM. Though, liquidity augmented four factor model was found to be slightly better in explaining Indian stock returns as compared to Fama and French three factor model.
Multi Factor Asset Pricing Model In The South African Stock Market
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Author : Uchenna Tony-Okeke
language : en
Publisher:
Release Date : 2015
Multi Factor Asset Pricing Model In The South African Stock Market written by Uchenna Tony-Okeke and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This study examines the performance of the CAPM, the three-factor model, the four-factor model and their liquidity adjusted variants in explaining realised returns, and also investigates the importance of higher moments in the South African stock market using the Basic Materials Index. The liquidity adjusted four-factor model performs best in explaining realised returns; however book-to-market value factor was found to be insignificant. Beta was consistently significant for all the models along with size, momentum and liquidity, however, unlike popular findings in the developed markets, large stocks were found to outperform small stocks and liquid stocks were found to outperform illiquid stocks. Including a dummy for the financial crisis changed some of the results significantly indicating the importance of model stability and the need to account for structural breaks/time variation. The two higher moment factors were also found to be important in pricing South African stocks. However, when the higher-order moments are included in the liquidity augmented four-factor model, the alpha term becomes significant.
An Empirical And Theoretical Analysis Of Capital Asset Pricing Model
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Author : Mohammad Sharifzadeh
language : en
Publisher: Universal-Publishers
Release Date : 2010-11-18
An Empirical And Theoretical Analysis Of Capital Asset Pricing Model written by Mohammad Sharifzadeh and has been published by Universal-Publishers this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-11-18 with categories.
The problem addressed in this dissertation research was the inability of the single-factor capital asset pricing model (CAPM) to identify relevant risk factors that investors consider in forming their return expectations for investing in individual stocks. Identifying the appropriate risk factors is important for investment decision making and is pertinent to the formation of stocks' prices in the stock market. Therefore, the purpose of this study was to examine theoretical and empirical validity of the CAPM and to develop and test a multifactor model to address and resolve the empirical shortcomings of the single-factor CAPM. To verify the empirical validity of the standard CAPM and of the multifactor model, five hypotheses were developed and tested against historical monthly data for U.S. public companies. Testing the CAPM hypothesis revealed that the explanatory power of the overall stock market rate of return in explaining individual stock's expected rates of return is very weak, suggesting the existence of other risk factors. Testing of the other hypotheses verified that the implied volatility of the overall market as a systematic risk factor and the companies' size and financial leverage as nonsystematic risk factors are important in determining stock's expected returns and investors should consider these factors in their investment decisions. The findings of this research have important implications for social change. The outcome of this study can change the way individual and institutional investors as well as corporations make investment decisions and thus change the equilibrium prices in the stock market. These changes in turn could lead to significant changes in the resource allocation in the economy, in the economy's production capacity and production composition, and in the employment structure of the society.
Multi Factor Asset Pricing Models For German Stocks
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Author : Wolfgang Bessler
language : en
Publisher:
Release Date : 2006
Multi Factor Asset Pricing Models For German Stocks written by Wolfgang Bessler and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
The large number of asset pricing models and empirical studies of stock returns are evidence of the desire to understand the return generating process of financial assets in general and for stocks in particular. One focus of the research in this area has been on multi-factor asset pricing models [Chen et al. (1986), Fama/French (1992)]. These models are based on the assumption that stock returns are generated by a limited number of economic variables such as company, industry or macroeconomic factors.The objective of this study is to analyze the importance of various economic factors in explaining the return structure for stocks in Germany and to investigate whether the impact of these factors is time varying. This is important, because in most studies of asset pricing models it is assumed that the parameters are non time varying. In particular, we investigate the time variability of the explanatory power and the beta coefficients in a multi-factor framework. For this we employ a rolling estimation procedure that allows us to analyze the time variability of the model coefficients.In the empirical analysis we use monthly data of four macroeconomic variables and the market index to explain the returns of four German industry indices for the period from 1974 to 2000. In contrast to most studies which exclude banks from their empirical analysis we use three industrial indices and a bank index. The economic factors included in our model are term spreads, interest rates, exchange rates and the ifo business index as well as the market index. The empirical results confirm that the factors used in our empirical analysis seem well suited to explain the stock returns especially for banks. Moreover, it is evident that the explanatory power and the beta coefficients are time varying.
