On drivers of asset pricing factors vrije universiteit amsterdam. An overview of asset pricing models andreas krause university of bath school of management phone. Noarbitrage pricing theory provides a clear answer expected returns di er because assets have di erent exposure to systematic risk. Chance, 1987, the effect of 12b1 plans on mutual fund expense ratios.
The course does not do any empirical tests of derivative pricing models, and concentrates on discretetime methods. B9311asset pricing ii spring 2009 course outline and. Efforts are also made towards the resolution of several welldocumented puzzles in empirical finance, which include the equity premium. The ecapm modification to the traditional capm is based on the premise that the results of a capm analysis are biased downward for. Empirical asset pricing studies, until recently, have typically ignored ambiguity and have not dealt with its potential. Essays on empirical asset pricing vrije universiteit amsterdam. Thus, throughout the paper we refer to the sharpelintnerblack model as the capm. Essays on empirical asset pricing academic commons. Empirical tests of asset pricing models with individual. Asset pricing implications of volatility term structure risk chen xie abstract i nd that stocks with high sensitivities to changes in the vix slope exhibit high returns on average. Part of our empirical analysis uses the methodology of hansen and jagannathan 1997, who develop a distance metric we call the hjdistance. Chang, christoffersen and jacobs 20, market skewness risk. Sharpe 1964 and lintner 1965 introduced the capital asset pricing model capm to investigate the relationship between the expected return and the systematic risk. Phil, monash university department of econometrics and business statistics monash university australia dec 2015.
Campbell abstract this paper surveys the field of asset pricing. In this paper an intertemporal model of international asset pricing is constructed which admits differences in consumption opportunity sets across countries. Testing capital asset pricing model on kse stocks salman ahmed shaikh. Empirical evidence menachem brennery and yehuda izhakianz november 6, 2015 abstract this paper introduces ambiguity in conjunction with risk to study the riskambiguityreturn relationship. Empirical capital asset pricing model ecapm do you agree with ms. Ang 2014 contains the basics of factor investing, explaining why this makes sense as an investment approach. Second, we synthesize the empirical asset pricing literature with the field. This question remains the holy grail of empirical asset pricing. As early as merton 1980, numerous studies have investigated the fundamental linear relationship between the risk and return of the market portfolio in the meanvariance paradigm. While developing portfolio theory, we will study the extensive empirical work that characterizes movements in security prices, evaluates alternative investment and asset pricing models, and attempts to test those models and interpret the implications of those tests. There will be a retake exam covering both parts of the course. Investmentbased asset pricing models get traction from a common tenet, namely. Specically, after summarizing modern asset pricing theory using the stochastic discount factor as an organizing framework, the paper discusses. Hodricka,b, xiaoyan zhanga agraduate school of business, columbia university, uris hall 605b, 3022 broadway, new york, ny 10027, usa bthe national bureau of economic research, 1050 massachusetts avenue, cambridge, ma 028, usa abstract this paper evaluates the speci.
We are registered with the sec, and based in newton, ma, a suburb of boston. This set the stage for his 1973 general equilibrium model of security prices, another milestone. Abstract capital asset pricing model capm is one of the first asset pricing models to be applied in security valuation. This dissertation is composed of three essays which examine different topics in empirical asset pricing. Hansen and jagannathan demonstrate how to measure the distance between a true pricing kernel stochastic discount factor that prices all assets, and the implied pricing kernel proxy of an asset pricing model. Essays in empirical asset pricing dukespace duke university. Empirical asset pricing the graduate school of finance. The capital asset pricing model capm is one of the most widely used models in. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. A quick overview of the other preferencebased approaches to macroasset pricing, recursive utility, incomplete markets, multiple goods, labor income. Eugene fama, lars peter hansen, and robert shiller john y. Contribute to ranzhaocguempiricalassetpricing development by creating an account on github.
This course is a phd level course in empirical asset pricing. The emphasis is on the interplay between theory and empirical work and on the tradeoff between risk and return. Introduction without a model showing how assets are priced in a world in which asset. As asset pricing models are, at best, approximations of reality, a more useful task for empirical researchers is to compare the performance of competing asset pricing models kan and robotti, 2009. This study focuses on empirical testing of capital asset pricing model capm in the indian equity market. Asset pricing models can be seen as useful approximations of reality to explain empirical stylised facts. All pricing information is summarized in the stochastic discount factor sdf or pricing kernel. His research has been published in academic journals such as journal of finance, journal of. The empirical validity and practical use of consumptionbased models as well as various factor models of asset pricing will be addressed and discussed. Under assumptions of a perfect capital market, the capm predicts that all investors will hold a combination of the market portfolio of risky assets and a portfolio whose returns are uncorrelated with market returns. Empirical asset pricing research interprets a number of these observed correlations as.
These topics are far more important than the short treatment im going to give them, but im leaving the big work to hansen and heaton. Simulation results indicate that the model is successful in matching key empirical asset pricing, exchange rate and international trade moments. Downloadable instructor resources available for this title. Empirical asset management, llc, is an independent investment management firm serving individuals, families, and institutions. By the end of the sample, the average endowment holds close to one. Empirical and theoretical work on how intermediation frictions matter for credit extension. The theoretical content of the course will have an overlap with the course on asset pricing provided by the danish doctoral school of finance.
Asset pricing 2 the exam will contain both exercises and theoretical questions. I will let you know about any such deviations in class. The capital asset pricing model capm and the arbitrage pricing theory apt have emerged as two models that have tried to scientifically measure the potential for assets to generate a return or a loss. Multifactor explanations of asset pricing anomalies. Topics in empirical asset pricing rotman school of. Capital asset pricing model and arbitrage pricing theory. Well also briefly look at some simple term structure models. Simulation results indicate that the model is successful in matching key empirical. You find the older matlab code here 7z file and the new julia code at github. Kenneth singletons book empirical dynamic asset pricing may also be of interest.
An empirical investigation of the capital asset pricing. Relative to traditional empirical methods in asset pricing, machine. Chapter 1 is the result of joint work with andrew ang and william goetzmann. Hansen and jagannathan 1997, hereafter hj, suggested that an appropriate way to compare their performance consisted in evaluating functions of their implied pricing errors on. The whole course for gsf students comprises 3 parts examinations of part i and ii, exercises, and a term paper. Pdf an empirical testing of capital asset pricing model in. In addition, you will find james hamiltons time series analysis very useful.
The articles will be available as pdfs from the class website. Hansen and jagannathan 1997, hereafter hj, suggested that an appropriate way to compare their performance consisted in evaluating functions of their implied pricing errors on corresponding euler equations. Loan supply loan pricing and through those channels, investment and consumption 1. For most of my recent courses, please see my teaching page at the sbf website. Note my program is set up with data files in a different directory. It also discusses empirical puzzles and recent theories that have been developed to try to solve them. Dynamic asset pricing theory provisional manuscript.
Lochstoer page 3 tentative reading list we may deviate from this reading list. A quick overview of the other preferencebased approaches to macro asset pricing, recursive utility, incomplete markets, multiple goods, labor income. Introduction to asset pricing theory the theory of asset pricing is concerned with explaining and determining prices of. Pdf an empirical testing of capital asset pricing model. For all the sessions students will need the class notes, the data files and a laptop with matlab. Resolving the errorsinvariables bias in risk premium estimation may 20, 2018.
The empirical quest in asset pricing for the last 40 years was to estimate a stochastic discount factor that can explain expected returns of all assets. Pdf list of participants, part ii topics in empirical asset pricing. Thus, various asset pricing models can be used to determine equity returns. Lars peter hansen, and robert shiller for their contributions to the empirical study of asset pricing.
Lecture notes for old courses mostly pdf files empirical asset pricing introductory phd, st. Asset pricing implications of volatility term structure risk. Jan 11, 2017 jegadeesh, narasimhan and noh, joonki and pukthuanthong, kuntara and roll, richard w. The course is especially appropriate for students contemplating analytical. Estimating asset pricing factors from largedimensional data. If you havent taken finance before, at least really read ch1 of asset pricing carefully before class starts. The nobel memorial prize in economic sciences for 20 was awarded to eugene fama. It develops empirical methodologies for measuring the degree of ambiguity and for assessing attitudes toward ambiguity. An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments.
The asset prices we discuss would include prices of bonds and stocks, interest rates, exchange rates, and derivatives of all these underlying. If you want to work in this area, you will need to develop knowledge of matlab, gauss or some other matrix programming language. First, we document that american university and college endowments have shifted their asset allocations from stocks to alternative investments. An empirical investigation of the capital asset, page 2 1. There are four major challenges that the literature so far has struggled to overcome in a single model. Resolving the errorsinvariables bias in risk premium estimation may 20. Multifactor explanations of asset pricing anomalies 57 1995 that the empirical successes of 1 suggest that it is an equilibrium pricing model, a threefactor version of mertons 1973 intertemporal capm icapm or rosss 1976 arbitrage pricing theory apt. Campbell1 may 2014 1department of economics, littauer center, harvard university, cambridge ma 028, and nber. Problem sets consisting of both standard exercises and empirical analysis of real data will be handed out to students during the course. Empiricalassetpricingassignment 1 at master github.
An overview of asset pricing models university of bath. Read download empirical asset pricing pdf pdf download. Christoffersen, jacobs and chang 20, forecasting with option implied information, handbook of economic forecasting, volume 2a. The asset pricing is uptotheminute and comprehensive, while the prose is concise and light. An accountingbased characteristic model for asset pricing. Asset prices depend on a weighted average of the two countries timevarying risk aversion, with the weights determined by the wealth and degree of home bias of each country. Jegadeesh, narasimhan and noh, joonki and pukthuanthong, kuntara and roll, richard w. During the course we explore the potential of advances in statistical learning for problems in empirical asset pricing and portfolio management.
Fin512 empirical asset pricing autumn 2018 course outline and syllabus contact information. Ferson shows you how to do finance, not just to appreciate it. An empirical investigation of the capital asset pricing model. The study is conducted for a period of 10 years ranging from january 2004december 20. This paper argues that empirical asset pricing is a coherent enterprise, which owes much. Introduction a long stream of papers documents correlations between firm characteristics and future stock returns. Estimating asset pricing factors from largedimensional data markus pelger 1 martin lettau 2 1stanford university 2uc berkeley april 21st, 2017 machine learning in finance workshop 2017 dsi columbia university and bloomberg lp. Essays in empirical asset pricing research explorer. Essays in empirical asset pricing sungjun cho this dissertation consists of two chapters, all of which attempt to shed some light on what constitutes the timevarying risk premia in. This table documents improvement in annualized sharpe ratio. The book introduces the theory of empirical asset pricing through three main. Factor models are the core of empirical asset pricing. B9311016 asset pricing ii course outline and syllabus. The asset pricing field is vast, but we will focus primarily on two core ideas.
The coverage of empirical methods and current empirical work is a particular strength. From the day capm was developed, it was regarded as one of the primary models to price an. Some observers have found it hard to understand the common elements of the laureatesresearch, preferring to highlight areas of disagreement among them. For asset pricing they provide the link between covariances and expected returns. If intermediation frictions affect asset prices, then they also affect quantities lendingloanspreads are another data moment for models to match 2. The ecapm modification to the traditional capm is based on the premise that the results of a capm analysis are biased downward for companies with a. An accountingbased characteristic model for asset pricing 1. It has had its share of criticism, both empirical and theoretical. Evaluating the specification errors of asset pricing models. An equilibrium model of institutional demand and asset prices. Assessing misspecified asset pricing models with empirical. Questions may be related to any material that is part of the program.