A note on the valuation of asset management firms

Market capitalization relative to assets under management is often used to value asset management firms. Huberman’s (2004) dividend discount model implies that cross-sectional variations in this metric are explained by cross-sectional differences in operating margins, and yet we find no evidence of this in our data set. We show that a superior model—inspired by the work of Berk and Green (2004)—includes also the level of fees as an explanatory variable. This approach dramatically increases the fit of our valuation model and casts doubt on the relevance of the so-called Huberman puzzle.     

A note on capital asset pricing and heterogeneous taxes

In this paper, we present a stylized model where we show how asset prices, i.e., required expected rates of returns, may be characterized in a world with heterogeneous asset taxes. Within a simple CAPM-like framework, we derive an after-tax beta equal to the pre-tax beta multiplied by a (non-obvious) asset specific tax adjustment. We further show in what sense the Security Market Line here can be replaced by a Security Market Fan. Well-known CAPM relations are obtained as special cases, and policy implications are analyzed.     

Value-at-risk-based risk management: optimal policies and asset prices

This article analyzes optimal, dynamic portfolio and wealth/consumptionpolicies of utility maximizing investors who must also managemarket-risk exposure using Value-at-Risk (VaR). We find thatVaR risk managers often optimally choose a larger exposure torisky assets than non-risk managers and consequently incur largerlosses when losses occur. We suggest an alternative risk-managementmodel, based on the expectation of a loss, to remedy the shortcomingsof VaR. A general-equilibrium analysis reveals that the presenceof VaR risk managers amplifies the stock-market volatility attimes of down markets and attenuates the volatility at timesof up markets.     

The impact of exchange rate risk on international asset pricing under various market structures

This article derives international equity pricing relations by taking into account inflationary exchange risk under various forms of market segmentation/integration. In a mean-variance framework, a two-country, two-period, two-goods model is analyzed under three different market structures: segmented, mildly segmented and integrated. It is found that as long as investors are consuming imported goods, in the presence of market frictions, inflationary exchange risk is an important determinant of real equity prices. This is the case because inflationary exchange rate affects the real purchasing power of investors.

A note on the importance of overnight information in risk management models

This paper examines the economic value of overnight information to users of risk management models. In addition to the information revealed by overseas markets that trade during the (domestic) overnight period, this paper exploits information generated via recent innovations in the structure of financial markets. In particular, certain securities (and associated derivative products) can now be traded at any time over a 24-h period. As such, it is now possible to make use of information generated by trading, in (almost) identical securities, during the overnight period. Of the securities that are available over such time periods, S&P 500 related products are by far the most actively traded and are, therefore, the subject of this paper. Using a variety of conditional volatility models that allow time-dependent information flow within (and across) three different S&P 500 markets, the results show that overnight information flow has a significant impact on the conditional volatility of daytime traded S&P 500 securities. Moreover (time-consistent) forecasts from models that incorporate overnight information are shown to have economic value to risk managers. In particular, Value-at-Risk (VaR) models based on these conditional volatility models are shown to be more accurate than VaR models that ignore overnight information.     

Displacement risk and asset returns

We study asset-pricing implications of innovation in a general-equilibrium overlapping-generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call “displacement risk.” This risk helps explain several empirical patterns, including the existence of the growth-value factor in returns, the value premium, and the high equity premium. We assess the magnitude of displacement risk using estimates of inter-cohort consumption differences across households and find support for the model.     

The consumption based asset pricing model: A note on potential tests and applications

Breeden's demonstration that Merton's multi-beta capital asset pricing model can be collapsed into a single-beta model where betas are computed with respect to aggregate consumption is an important theoretical advance. Nonetheless, Breeden's model retains many of the empirical problems that beset Merton's earlier version. In general the consumption betas will be nonstationary, so that the state variables must be observable for the model to be estimated.     

A note on relative efficiency and risk aversion

Stochastic dominance rules have recently been suggested as criteria for efficient choice under uncertainty. However, the aspect of relative efficiency has been neglected, i.e., given any specific utility function u₀, find the conditions imposed on F and G such that $\text{E}{}_{\mathrm{F}}\text{u≧E}{}_{\mathrm{G}}\text{u}$ for all u?U (u₀), where U(u₀)={u| ? u′/u′ ≥ ? u″₀/u′₀}. This note suggests a necessary and sufficient condition for relative efficiency in the case that F and G cross other only once. Some applications are discussed.     

A note on generalized distortion risk measures

A generalized distortion risk measure is introduced as power of the mean absolute deviation power of a distorted random variable with respect to a location parameter. This class of risk measures extends both the distortion risk measure by Wang and Denneberg and the class of financial risk measures by Pedersen and Satchell, which itself contains the class of Stone. Integral representations and a stop–loss order preserving property of a special up-side risk measure are derived.     

International exchange risk and asset substitutability

This paper estimates subsitutability/complementarity relations among financial assets denominated in foreign currencies. Utilizing a representative investor and a flexible functional form methodology, a mean-variance utility function was estimated and used to determine expected return and variance elasticities between assets in the world portfolio. The hypothesis that international assets are perfect substitutes was rejected. It was also found that relative changes in variance tended to have a bigger impact on asset demand than did relative changes in expected returns. Substituability/complementarity relationships were not strong except in specific cases where strong relationships were expected a priori.     

Aggregate implications of micro asset market segmentation

An extensive empirical literature finds that micro asset markets are segmented from one another. We develop a consumption-based asset pricing model to quantify the aggregate implications of a financial system comprised of many such segmented micro asset markets. We specify exogenously the level of segmentation that determines how much idiosyncratic risk traders bear in their micro market and calibrate the segmentation to match facts about systematic and idiosyncratic return volatility. In our benchmark model traders bear 30% of their idiosyncratic risk, the unconditional aggregate equity premium is 2.4% annual, and the welfare costs of segmentation are substantial, 1.8% of lifetime consumption.     

Sovereign asset values and implications for the credit market

Using the contingent claim approach and market data on sovereign credit default swaps we assess the drivers of a country's risk perception. Deriving market-based asset values for a set of advanced economies we gain insights into the capital markets' perspectives on sovereign creditworthiness. We find the market-based asset values to be positively influenced by debt and to be an early risk indicator for economic developments. In a cross-section analysis we identify drivers of the economic risk of countries. Clustering the countries according to their debt to asset value ratios provides further insights into the market perceptions of sovereign credit risk. For example we find that the asset values of countries with higher ratios react to changes in the global equity market. Countries with a lower ratio react more to the political stability within the country.     

商业银行转型与市场风险管理面临的挑战

由传统业务模式向现代业务模式转型,是商业银行保持可持续发展的必然要求和趋势,但商业银行在推进业务转型中可能遇到一定的合规与市场风险,值得监管者和风险管理部门关注,文章基于当前商业银行内部业务运作与外部市场环境的现状,以理财业务、债券承销业务与交易全球化为代表具体分析了其中的风险点,并提出相关对策建议。     

A note on managing deposit flows with cash and futures market decisions

As deposit market become less regulated, financial intermediaries must focus more of their attention on the explicit pricing of deposit accounts. An implication of pricing deposits is that the intermediary faces a random source of funds when future deposit supplies are unknown. This note shows that financial futures contracts can be used to hedge the risk of deposit withdrawals, allowing the financial firm to set lower deposit rates than it would without futures trading. A model of risk averse banking behavior is constructed to determine the relationship between hedging deposit withdrawals and setting deposit rates. Using the certificate of deposit futures contract to hedge demand and savings deposit withdrawals, an empirical application of the model reveals that the possible gains in profitability from setting deposit rates and hedging withdrawals are small but statistically significant.     

A Markov model for valuing asset prices in a dynamic bargaining market

This paper proposes a Markov chain model for studying the impact on asset prices of illiquidity associated with search and bargaining in an economy. The economy consists of finitely many agents who can trade only when they find each other, and any trade between agents changes the population of the agent types which affects the asset price in the future. Assuming that the equilibrium utility as well as the trade price is proportional to the asset dividend, we obtain the asset prices in steady state. Through extensive numerical experiments, we observe that the equilibrium prices exhibit the cutoff phenomenon (i.e. crash) as the fraction of pessimistic agents becomes large. Models with a market maker as well as irrational agents are also considered.     

Consumption-leisure nonseparabilities in asset market participants’ preferences

We use panel data to estimate nonlinear Euler equations for preferences that are nonseparable in consumption and leisure. This approach departs from existing panel data studies that investigate linearizations and/or separable preferences. Intuitively plausible estimates are obtained only when excluding nonassetholders from the sample, which indicates the importance of asset market participation. For market participants, estimated parameter values are intuitively appealing, but differ from existing estimates. They also differ from parameter values commonly used in computational experiments. These findings have implications for the extensive literature in macroeconomics and finance that studies models of intertemporal decision-making, and they confirm the importance of market incompleteness.     

资本市场、资产证券化与我国银行经营

近年来,无论是发达国家,还是发展中国家,资本市场在其国民经济的重要地位正日益显现.资本市场作为要素市场的重要部分,是配置社会资源的重要场所,其从来没有像现在这样引入瞩目.从全球范围来看,目前世界金融体系主要分为银行主导型金融体系和市场主导型金融体系,无论是以资本市场为主导的英美,还是以银行主导的德日,它们都有一个共同的特点,那就是它们的资本市场在近几年都得到了飞速的发展.     

Equilibrium relations in a capital asset market: A mean absolute deviation approach

We consider the equilibrium in a capital asset market where the risk is measured by the absolute deviation, instead of the standard deviation of the rate of return of the portfolio. It is shown that the equilibrium relations proved by Mossin for the mean variance (MV) model can also be proved for the mean absolute deviation (MAD) model under similar assumptions on the capital market. In particular, a sufficient condition is derived for the existence of a unique nonnegative equilibrium price vector and derive its explicit formula in terms of exogeneously determined variables. Also, we prove relations between the expected rate of return of individual assets and the market portfolio.