New Evidence On Economic Policy Uncertainty And Equity Risk Premium

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New Evidence On Economic Policy Uncertainty And Equity Risk Premium

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Author : Xiaoming Li
language : en
Publisher:
Release Date : 2017

New Evidence On Economic Policy Uncertainty And Equity Risk Premium written by Xiaoming Li 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.

Contrary to the recently reported US evidence of a negative premium, this study shows that China's economic policy uncertainty (EPU) commands a positive equity risk premium. Motivated by the observation that Chinese stock traders have a strong risk appetite and a cognitive bias, we modify the assumption underlying the orthodox ICAPM framework to derive hypotheses consistent with the Chinese context, and test them based on multifactor models. We find that stocks with higher EPU betas earn significantly higher average returns. Loadings on the EPU factor incrementally and positively forecast the cross-section of returns on portfolios and individual stocks.

Understanding Emerging Market Equity Risk Premia

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Author : Michael Donadelli
language : en
Publisher:
Release Date : 2013

Understanding Emerging Market Equity Risk Premia written by Michael Donadelli 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.

The average equity risk premium (ERP) in emerging markets is well-known to be significantly higher than in developed markets. But, key reasons for this remain unclear, contributing to investment strategy uncertainty. Here, we use industry-level data for 19 emerging market countries across three regions of the world to first examine the contribution of each industrial stock market to the extra premium paid by emerging markets to international investors from 1995 to present, and then to explore the relative importance of country-level governance and macroeconomic policy uncertainty in explaining both national and regional industry-by-industry ERP behaviour. We conduct separate analyses for the emerging mar- ket crises period of 1995-2002, and the post-crises period of 2003-2012. Based on both static and dynamic approaches, we find that some industries indeed perform consistently better than others. In particular: (i) the healthcare and basic materials industries mostly contributed to the extra premium paid by the Asian stock market; and (ii) the East European and Latin American stock markets' extra performances were largely driven by the utilities and consumer services industries, respectively. However, our cross-sectional analyses sug- gest that country-level governance indicators are not strongly correlated with either national or industry-level returns, with the exception of the consumer services industry. Lastly, using both rolling-window and DCC-GARCH frameworks, we find that correlations between industrial stock market excess returns and a measure of global economic policy uncertainty are consistently negative, and follow similar patterns. Our empirical evidence as a whole suggests that industrial stock markets are more highly related both within and across countries and regions than has been suggested previously. Contrary to much existing empirical work, our results therefore suggest there is little space in emerging markets to exploit cross- industry portfolio diversification benefits.

Political Uncertainty And Risk Premia

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Author : Lubos Pastor
language : en
Publisher:
Release Date : 2014

Political Uncertainty And Risk Premia written by Lubos Pastor and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

We develop a general equilibrium model of government policy choice in which stock prices respond to political news. The model implies that political uncertainty commands a risk premium whose magnitude is larger in weaker economic conditions. Political uncertainty reduces the value of the implicit put protection that the government provides to the market. It also makes stocks more volatile and more correlated, especially when the economy is weak. We find empirical evidence consistent with these predictions.

Political Uncertainty And Risk Premia

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Author : Luboš Pástor
language : en
Publisher:
Release Date : 2011

Political Uncertainty And Risk Premia written by Luboš Pástor and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with Economics categories.

We develop a general equilibrium model of government policy choice in which stock prices respond to political news. The model implies that political uncertainty commands a risk premium whose magnitude is larger in weaker economic conditions. Political uncertainty reduces the value of the implicit put protection that the government provides to the market. It also makes stocks more volatile and more correlated, especially when the economy is weak. We find empirical evidence consistent with these predictions.

Policy Uncertainty In Japan

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Author : Ms.Elif C Arbatli
language : en
Publisher: International Monetary Fund
Release Date : 2017-05-30

Policy Uncertainty In Japan written by Ms.Elif C Arbatli and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-05-30 with Business & Economics categories.

We develop new economic policy uncertainty (EPU) indices for Japan from January 1987 onwards building on the approach of Baker, Bloom and Davis (2016). Each index reflects the frequency of newspaper articles that contain certain terms pertaining to the economy, policy matters and uncertainty. Our overall EPU index co-varies positively with implied volatilities for Japanese equities, exchange rates and interest rates and with a survey-based measure of political uncertainty. The EPU index rises around contested national elections and major leadership transitions in Japan, during the Asian Financial Crisis and in reaction to the Lehman Brothers failure, U.S. debt downgrade in 2011, Brexit referendum, and Japan’s recent decision to defer a consumption tax hike. Our uncertainty indices for fiscal, monetary, trade and exchange rate policy co-vary positively but also display distinct dynamics. VAR models imply that upward EPU innovations foreshadow deteriorations in Japan’s macroeconomic performance, as reflected by impulse response functions for investment, employment and output. Our study adds to evidence that credible policy plans and strong policy frameworks can favorably influence macroeconomic performance by, in part, reducing policy uncertainty.

Policy Uncertainty And Stock Market Behaviour

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Author : Xun Lei
language : en
Publisher:
Release Date : 2017

Policy Uncertainty And Stock Market Behaviour written by Xun Lei 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.

This paper studies how the Baker, Bloom and Davis (2013) new measure capturing economic policy uncertainty (EPU) is related to stock market performance in the United States. We use a variety of methods to estimate different specifications. We find that an increase in the EPU index negatively affects the S&P500 returns and raises its implied volatility. However, there is no evidence to support that an increase in the EPU has a significant influence on dividend growth. Furthermore, the component of the EPU that has the strongest explanatory power is that based on newspaper coverage of policy uncertainty, while the other three components lack statistical significance. These findings suggest that the news information is an economically important risk factor for a financial market. This study also provides some further discussion on characteristics portfolio and predictability of cash flow and discount rate. Governments should try to maintain policy stability and sustainability, so that investors can make reasonable predictions about policy changes and arrange their investment planning accordingly. Moreover, investors should also pay attention to expectations of policy change and adjust their portfolios based on policy uncertainty exposure.

The Correlation Risk Premium

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Author : Gonçalo Faria
language : en
Publisher:
Release Date : 2021

The Correlation Risk Premium written by Gonçalo Faria and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Portfolio management categories.

In this paper we carry out the first cross-country analysis of the correlation risk premium. We examine the statistical properties of the implied and realized correlation in European equity markets and relate the resulting premium to US equity market correlation risk and a global correlation risk premium. We find evidence of strong co-movement of correlation risk premiums in European and US equity markets. Our results support the existence of a strong empirical relationship between the global correlation risk premium and international equity market option returns. We document the dependence of the correlation risk premium on macroeconomic policy uncertainty and related variables.

Empirical Asset Pricing

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Author : Turan G. Bali
language : en
Publisher: John Wiley & Sons
Release Date : 2016-02-26

Empirical Asset Pricing written by Turan G. Bali and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-02-26 with Business & Economics categories.

“Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.

Handbook Of The Fundamentals Of Financial Decision Making

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Author : Leonard C. MacLean
language : en
Publisher: World Scientific
Release Date : 2013

Handbook Of The Fundamentals Of Financial Decision Making written by Leonard C. MacLean and has been published by World Scientific this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Business & Economics categories.

This handbook in two parts covers key topics of the theory of financial decision making. Some of the papers discuss real applications or case studies as well. There are a number of new papers that have never been published before especially in Part II.Part I is concerned with Decision Making Under Uncertainty. This includes subsections on Arbitrage, Utility Theory, Risk Aversion and Static Portfolio Theory, and Stochastic Dominance. Part II is concerned with Dynamic Modeling that is the transition for static decision making to multiperiod decision making. The analysis starts with Risk Measures and then discusses Dynamic Portfolio Theory, Tactical Asset Allocation and Asset-Liability Management Using Utility and Goal Based Consumption-Investment Decision Models.A comprehensive set of problems both computational and review and mind expanding with many unsolved problems are in an accompanying problems book. The handbook plus the book of problems form a very strong set of materials for PhD and Masters courses both as the main or as supplementary text in finance theory, financial decision making and portfolio theory. For researchers, it is a valuable resource being an up to date treatment of topics in the classic books on these topics by Johnathan Ingersoll in 1988, and William Ziemba and Raymond Vickson in 1975 (updated 2 nd edition published in 2006).

The Cross Section Of Stock Returns

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Author : Stijn Claessens
language : en
Publisher:
Release Date : 2016

The Cross Section Of Stock Returns written by Stijn Claessens 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.

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