The role of an illiquidity risk factor in asset pricing: Empirical evidence from the Spanish stock market

The main purpose of this study is to construct an illiquidity risk factor for the Spanish stock market over the 1994–2002 period. Because of the absence of consensus in empirical research about the most appropriate liquidity measure, we applied the Amihud [Amihud, Y. (2002). Illiquidity and stock returns: Cross-section and time-series effects. Journal of Financial Markets 5, 31–56] illiquidity ratio that shows the price response associated with one euro of trading volume. Moreover, we generated an illiquidity factor using the Fama and French [Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33, 3–56] orthogonal approach and analyzed whether it enters the stochastic discount factor as an additional state variable. We conclude that systematic illiquidity should be a key ingredient of asset pricing.     

An analysis of the capital asset pricing model in the Egyptian stock market

This paper offers evidence confirming the validity of applying modern portfolio theory and capital asset pricing models to the emerging stock market of Egypt. The results indicate that market risk, as measured by beta and preference for skewness, seems to play a significant role in the returns dynamics in the Egyptian stock market. There is a significant and positive premium for companies with positive skewness. With regard to the return-risk trade off, the results indicate that a portfolio that was based on consumer staples and financial companies (mainly banks) with low betas had outperformed a portfolio containing construction, materials, hotels, and weaving companies with larger betas. Historically, the government's nationalizations that took place, between the mid fifties to the mid sixties, had adversely affected companies in the industrial and construction sectors more than consumer staples companies and banks. This could explain why lower beta companies were observed more in consumer staples, banks, and pharmaceuticals.     

Disagreement with procyclical beliefs and asset pricing

We consider a pure exchange economy with incomplete information in which the expected growth rate of endowment is unobservable. The economy is populated by two investors, one is rational, but the other irrationally believes that the dynamics of endowment exhibit procyclical feature. Such different opinions about the dynamics of endowment process produce persistent disagreement between the investors. We show that model-implied riskfree rate is procyclical. Further, the procyclical beliefs not only explain the excess volatility puzzle, but also help to explain the mixed results about the relationship between the investors’ belief dispersions and stock return. Moreover, we uncover that the rational investor prefers to short stock positions in good times as the degree of the other investor’s irrationality increasing.     

Disagreements with noisy signals and asset pricing

We consider a Lucas-type exchange economy with two trees and two investors to analyze the effects of heterogeneous beliefs and signal quality on stock market equilibrium. Our model has the following implications. There are spillover effects, in that the investors’ heterogeneous beliefs and signal quality related to one stock not only affect its own price and pricing moments, but also affect those of the other. Contrary to the conventional wisdom, we show that the volatility of one stock decreases with both its own and the other stock’s disagreements. Additionally, we reveal a negative correlation between the stocks, which decreases as the investors’ dispersions raise but increases as the discrepancy in signal quality reduces. We also show that heterogeneous beliefs and signal quality impact stock market beta mainly through scale and volatility effects, respectively. Furthermore, our findings suggest that both heterogeneous beliefs and signal quality have significant influences on the investors’ optimal portfolio plans.     

Does conditional market skewness resolve the puzzling market risk-return relationship?

In this paper, we employ instrumental variables methods that allow time-varying risk and reward-to-risk to test various conditional asset pricing models. We find a negative partial relation between the market excess return and conditional market variance. In contrast with recent findings, we show that this negative relationship is not due to the omission of the hedge term associated with the ICAPM. However, conditional market skewness seems to partly account for this negative risk-return relationship.     

Liquidity and asset pricing: Evidence from the Chinese stock markets

We introduce a novel two-factor model, incorporating market and liquidity factors, which outperforms the CAPM and Fama–French factor models when applied to stock market returns in Shanghai and Shenzhen over 2000–2019. We compute the liquidity factor as the return on a liquidity-mimicking portfolio, which we construct simultaneously using two measures of liquidity (one of them capturing liquidity’s trading-quantity dimension, and the other associated with its price-impact dimension). Unlike the CAPM and Fama–French factor models, the advocated two-factor model is able to account for numerous return anomalies, such as size, book-to-market ratio, earnings-to-price ratio, cash-flow-to-price ratio, return-on-equity, and volatility. The model’s performance is similar when applied separately to the Shanghai and Shenzhen stock markets. Furthermore, it fares similarly over the 1994–2004 and 2005–2019 sub-periods. This result is somewhat surprising, because liquidity seems likely to have been substantially lower over 1994–2004, as the Chinese markets were noticeably smaller, and the critical market reform aimed at eliminating non-tradable shares by the end of 2006 did not occur until 2005.     

Value investing anomalies in the European stock market: Multiple Value, Consistent Earner, and Recognized Value

Empirical academic studies have consistently found that value stocks outperform glamour stocks and the market as a whole. This article extends prevailing research on existing value anomalies. It evaluates simple value strategies for the European stock market (compared to many other studies that test market data on a country-by-country basis) as well as sophisticated multi-dimensional value strategies that also include capital return variables (Consistent Earner Strategy) and momentum factors (Recognized Value Strategy), the latter reconciling intermediate horizon momentum and long-term reversals of behavioral finance theories. It can be shown that these “enhanced” value strategies can produce superior returns compared to returns of the whole market or “simple” value strategies without capturing higher risks applying traditional risk measures.     

Non-parametric and semi-parametric asset pricing: An application to the Colombian stock exchange

We estimate non-parametrical one-factor and three-factor international Capital Asset Pricing Models (CAPM) and find strong evidence for rejecting the linear CAPM specification. Furthermore, we find inconsistent linear betas for a series of stocks in the Colombian stock exchange (BVC), supporting the hypothesis of better and consistent fit of non-parametrical versions of the CAPM.     

Examining macroeconomic models through the lens of asset pricing

We develop new methods for representing the asset-pricing implications of stochastic general equilibrium models. We provide asset-pricing counterparts to impulse response functions and the resulting dynamic value decompositions (DVDs). These methods quantify the exposures of macroeconomic cash flows to shocks over alternative investment horizons and the corresponding prices or investors’ compensations. We extend the continuous-time methods developed in Hansen and Scheinkman (2012) and Borovi?ka et al. (2011) by constructing discrete-time, state-dependent, shock-exposure and shock-price elasticities as functions of the investment horizon. Our methods are applicable to economic models that are nonlinear, including models with stochastic volatility.     

Empirical evidence of error in pricing of favorites and longshots in greyhound racing

Sports bettors' success depends on the ability to accurately assess the true probability of outcomes. Successful racetrack bettors can realize returns better than the track take out. Historical empirical evidence shows the presence of favorite-longshot bias (FLB) in horse racing where bettors underbet favorites. Conversely, bettors overbet longshots. We tested for FLB bias in racing data from three greyhound racetracks. Our results show opposite behavior. We show bettors apparently underestimated for longshots, and overestimated for favorites, the true probability of winning. In 10 out of 14 grades bettors significantly overbet favorites, and underbet longshots in 8 out of 14.     

The competitions of time-varying and constant loadings in asset pricing models: empirical evidence and agent-based simulations

Journal of Economic Interaction and Coordination - Under two frameworks of cross-section and time-series factors, we implement asset pricing models to dissect the abnormal returns in the Chinese...     

Influence diagnostic in survey sampling: Estimating the conditional bias

The conditional bias has been proposed by Moreno Rebollo et al. (1999) as an influence diagnostic in survey sampling, when the inference is based on the randomization distribution generated by a random sampling. The conditional bias is a population parameter. So, from an applied point of view, it must be estimated. In this paper, we propose an estimator of the conditional bias and we study conditions that guarantee its unbiasedness. The results are applied in a Simple Random Sampling and in a Proportional Probability Aggregated Size Sampling, when the ratio estimator is used. Received October 2000     

Note: Heteroscedasticity in the market model: Some evidence from the athens stock exchange

Over the last three decades a substantial amount of empirical research has been undertaken to investigate the behaviour of major securities markets. While some work has been done with data from the markets of developing countries, considerable testing must be undertaken for the world's emerging securities market. The objective of this paper is to present some Greek evidence of the heteroscedasticity in the market model. The paper examined 43 companies quoted on the Athens Stock Exchange and found substantial evidence of heteroscedasticity.     

我国货币政策的股票市场传导机制实证分析

本文取2000年1月至2008年2月的历史数据,采用ADF单位根检验、Johansen协整检验以及Granger 检验等实证方法探讨我国股票市场的货币政策传导效率如何.     

基子中国股票市场审计师变更与审计意见购买的实证分析

上市公司通过变更审计师进行审计意见购买的行为，一直受到监管部门和学术界的高度关注。本文利用1995年到2005年间中国A股上市公司审计意见和审计师变更的宏观数据，在将非标准无保留审计意见细分后，通过ARMA模型对上市公司变更审计师进行审计意见购买的潜在原因和实现情况进行Granger因果关系检验。研究结论表明：只有收到带解释说明段的保留意见、无法表示意见及否定意见才会引起上市公司变更审计师，而且，这些上市公司可以通过变更审计师实现审计意见购买。     

An analytical study on effect of FIIs & DIIs on Indian stock market

Purpose: The purpose of this research is to examine the effect of FIIs and DIIs activities on volatility of Indian stock market. This study also examined the causal relationship between FIIs and DIIs.

Design/Methodology/Approach: This study uses Nifty, Nifty Next 50, BSE Sensex, and BSE 100 to represent Indian stock market. Ganger Causality test is used to see causal relationship between FIIs and DIIs. TGARCH model is used to check volatility of Indian stock market.

Practical implication: This will also help investors to make investment decisions, especially investing in these indices as they will be able to forecast effect of recent news and historical volatility of returns.

Originality/value: This paper will be useful to investors investing in these four major indices.     

Strategy switching in the Japanese stock market

This paper investigates the expectation formation process of Japanese stock market professionals. By utilizing a monthly forecast survey dataset on the TOPIX distributed by QUICK Corporation, we sort forecasters into buy-side and sell-side professionals. We empirically demonstrate that the buy-side and sell-side professionals use either fundamental or trend-following strategies throughout their expectation formation processes and that they switch between fundamental and trend-following strategies over time. We also discuss that strategy switching can be key in understanding the persistent deviation of the TOPIX from the fundamentals.     

Learning from experience in the stock market

New evidence suggests that individuals “learn from experience,” meaning they learn from events occurring during their lives as opposed to the entire history of events. Moreover, they weigh more heavily recent events compared to events occurring in the distant past. This paper analyzes the implications of such learning for stock pricing in a model with finitely lived agents. Individuals learn about the rate of change of the stock price and of dividends using a weighted decreasing-gain algorithm. As a result of waves of optimism and pessimism, the stock price exhibits stochastic fluctuations around the rational expectations equilibrium. Conditional on the historical path of dividends, the model produces a price–dividend ratio which is in line with the evidence for the last century, except for the “dot-com” bubble in the 1990s.