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Production Based Asset Pricing

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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.

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.

Using Production Based Asset Pricing To Explain The Behavior Of Stock Returns Over The Business Cycle

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Author :
language : en
Publisher:
Release Date : 1989

Using Production Based Asset Pricing To Explain The Behavior Of Stock Returns Over The Business Cycle written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1989 with categories.

Using Production Based Asset Pricing To Explain The Behavior Of Stock Returns Over The Business Cycle

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Author : John H. Cochrane
language : es
Publisher:
Release Date : 1989

Using Production Based Asset Pricing To Explain The Behavior Of Stock Returns Over The Business Cycle 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 1989 with categories.

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.

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.