Return Decomposition
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Return Decomposition
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Author : Yuan-Szu Chang
language : en
Publisher:
Release Date : 2015
Return Decomposition written by Yuan-Szu Chang 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.
We test the implications of the return decomposition of Campbell (1991), in which the unexpected market return is decomposed into cash-flow and discount-rate news. Unlike most of the previous literature, which uses VAR models to implement the return decomposition, we propose a state-space model with parameter restrictions, which is a more systematic and direct than the VAR approach on two aspects. First, the state-space model approach simultaneously models returns, cash-flow news, and discount-rate news, whereas the VAR approach models discount-rate news and uses the return decomposition to back out cash flow news. Second, the state-space model allows us to use information directly related to market and portfolio returns to study the return decomposition, whereas the VAR approach utilizes different predictive variables. We find that discount-rate news has larger variance than does cash-flow news and that the two types of news are nearly perfectly correlated, which can be economically intuitive. We also find that small stocks have higher cash-flow betas than do large stocks, but do not find that value stocks have higher ashflow betas than do growth stocks.
Return Decomposition Over The Business Cycle
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Author : Tolga Cenesizoglu
language : en
Publisher:
Release Date : 2014
Return Decomposition Over The Business Cycle written by Tolga Cenesizoglu 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.
To analyze the determinants of the observed variation in stock prices, Campbell and Shiller (1988) have suggested decomposing unexpected stock returns into unexpected changes in investors' beliefs about future cash flows (cash flow news) and discount rates (discount rate news). Based on a generalization of this approach to a framework with regime-switching parameters and variances, we analyze the decomposition of the conditional variance of returns on the S&P 500 index over the business cycle. The cash flow news is relatively more important than discount rate news in determining the conditional variance of returns in expansions. The conditional variances of returns and its components increase in recessions. However, the conditional variance of discount rate news increases more than that of cash flow news and, thus, the discount rate news becomes relatively more important than cash flow news in determining the conditional variance of returns in recessions. In contrast to the standard Campbell and Shiller approach with constant parameters and variances, cash flow news becomes more important than discount rate news in determining the unconditional variance of returns when we allow parameters and variances to vary over the business cycle. We show that these results are broadly consistent with the implications of a stylized asset pricing model in which the growth rates of dividends and consumption take on different values depending on the underlying state of the economy.
Return Decomposition
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Author : Long Chen
language : en
Publisher:
Release Date : 2008
Return Decomposition written by Long Chen 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.
A crucial issue in asset pricing is to understand the relative importance of discount rate (DR) news and cash flow (CF) news in driving the time-series and cross-sectional variations of stock returns. Many studies directly estimate the DR news but back out the CF news as the residual. We argue that this approach has a serious limitation because the DR news cannot be accurately measured due to the small predictive power, and the CF news, as the residual, inherits the large misspecification error of the DR news. We apply this residual-based decomposition approach to Treasury bonds and equities, and find results that are either counter-intuitive or unrobust. Potential solutions, including modeling both DR news and CF news directly, the Bayesian model averaging approach, and the principal component analysis, are explored.
A Stock Return Decomposition Using Observables
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Author : Benjamin Knox
language : en
Publisher:
Release Date : 2022
A Stock Return Decomposition Using Observables written by Benjamin Knox and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with categories.
On The Return Decomposition And The Intertemporal Capm
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Author : Yuan-Szu Chang
language : en
Publisher:
Release Date : 2012
On The Return Decomposition And The Intertemporal Capm written by Yuan-Szu Chang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
Multivariate Return Decomposition
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Author : Stanislav Anatolyev
language : en
Publisher:
Release Date : 2017
Multivariate Return Decomposition written by Stanislav Anatolyev 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.
In this paper, we propose a model based on multivariate decomposition of multiplicative--absolute values and signs--components of several returns. In the m-variate case, the marginals for the m absolute values and the binary marginals for the m directions are linked through a 2m-dimensional copula. The approach is detailed in the case of a bivariate decomposition. We outline the construction of the likelihood function and the computation of different conditional measures. The finite-sample properties of the maximum likelihood estimator are assessed by simulation. An application to predicting bond returns illustrates the usefulness of the proposed method.
Return Decomposition And The Intertemporal Capm
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Author : Paulo F. Maio
language : en
Publisher:
Release Date : 2013
Return Decomposition And The Intertemporal Capm written by Paulo F. Maio 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 Intertemporal CAPM (ICAPM) by Merton (1973) has had a strong impact in empirical asset pricing leading to numerous multifactor models. This paper shows that the explanatory power of the ICAPM application by Campbell and Vuolteenaho (2004) relies critically on the computation of Dimson (1979) covariances (betas). If one employs the standard factor covariances (excluding lagged factors), the two-factor ICAPM has virtually no explanatory power over the average returns of the 25 size/book-to-market portfolios. More specifically, it is the covariance with the lagged innovation in one of the state variables (the value spread) that drives the explanatory power of the model. These results are inconsistent with the central economic intuition from the ICAPM. By specifying a more general version of the ICAPM, the fit of the model improves relative to the Campbell and Vuolteenaho (2004) model.
Modeling Financial Return Dynamics Via Decomposition
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Author : Stanislav Anatolyev
language : en
Publisher:
Release Date : 2009
Modeling Financial Return Dynamics Via Decomposition written by Stanislav Anatolyev 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.
While the predictability of excess stock returns is detected by traditional predictive regressions as statistically small, the direction-of-change and volatility of returns exhibit a substantially larger degree of dependence over time. We capitalize on this observation and decompose the returns into a product of sign and absolute value components whose joint distribution is obtained by combining a multiplicative error model for absolute values, a dynamic binary choice model for signs, and a copula for their interaction. Our decomposition model is able to incorporate important nonlinearities in excess return dynamics that cannot be captured in the standard predictive regression setup. The empirical analysis of US stock return data shows statistically and economically significant forecasting gains of the decomposition model over the conventional predictive regression.
Understanding The Variation In The Information Content Of Earnings
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Author : Kewei Hou
language : en
Publisher:
Release Date : 2015
Understanding The Variation In The Information Content Of Earnings written by Kewei Hou 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.
Bond Holding Period Return Decomposition
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Author : Robert Brooks
language : en
Publisher:
Release Date : 2019
Bond Holding Period Return Decomposition written by Robert Brooks 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.
The problem of decomposing bond portfolio holding period returns is addressed in this paper. Bond holding period returns are decomposed into four main components, the non-random horizon component, the spread component, the base-rate component, and an interaction component. The horizon component captures the return attributable to the mere passage of time over the holding period horizon based solely on the selected base spot rate curve. The spread component captures the return attributable to any change in the spread over the fitted base spot rate curve. The base-rate component captures movement in the fitted base spot rate curve using the LSC model introduced in this paper. The base-rate component of returns can be further decomposed into three components attributable to modified duration, convexity, and cross-convexity using the Taylor series approximation. Each of these three base-rate components can be further decomposed into three subcomponents tied to movement in level, movement in slope, and movements in a set of curvature components. We illustrate our results with several numerical examples, generic as well as actual U.S. Treasury data.
