An International Asset Pricing Model with Time-Varying Hedging Risk

This paper employs a two-factor international equilibrium asset pricing model to examine the pricing relationships among the world's five largest equity markets. In addition to the traditional market factor premium, a hedging factor premium is included as the second factor to explain the relationship between risks and returns in the international stock markets. Moreover, a GARCH parameterization is adopted to characterize the general dynamics of the conditional second moments. The results suggest that the additional hedging risk premium is needed to explain rates of return on international equities. Furthermore, the restriction that the coefficient on the hedge-portfolio covariance is one smaller than the coefficient on the market-portfolio covariance can not be rejected. This suggests that the intertemporal asset pricing model proposed by Campbell (1993) can be used to explain the returns on the five largest stock market indices.     

Multifactor models and their consistency with the ICAPM

Can any multifactor model be interpreted as a variant of the Intertemporal CAPM (ICAPM)? The ICAPM places restrictions on time-series and cross-sectional behavior of state variables and factors. If a state variable forecasts positive (negative) changes in investment opportunities in time-series regressions, its innovation should earn a positive (negative) risk price in the cross-sectional test of the respective multifactor model. Second, the market (covariance) price of risk must be economically plausible as an estimate of the coefficient of relative risk aversion (RRA). We apply our ICAPM criteria to eight popular multifactor models and the results show that most models do not satisfy the ICAPM restrictions. Specifically, the “hedging” risk prices have the wrong sign and the estimates of RRA are not economically plausible. Overall, the Fama and French (1993) and Carhart (1997) models perform the best in consistently meeting the ICAPM restrictions. The remaining models, which represent some of the most relevant examples presented in the empirical asset pricing literature, can still empirically explain the size, value, and momentum anomalies, but they are generally inconsistent with the ICAPM.     

资产定价:理论演进及应用研究

资产定价理论是现代金融理论的核心.本文通过对资产定价理论的综述,揭示了从传统资产定价理论到行为资产定价理论的演进脉络,并对各理论及相应模型的内涵和应用进行了描述,最后对传统资产定价理论和行为资产定价理论进行了比较,以期对我国金融理论和实践的发展有所帮助.     

Commercial Real Estate Return Performance: A Cross-Country Analysis

This paper investigates the return performance of publicly traded real estate companies. The analysis spans the 1984–1999 time period and includes return data on over 600 companies in 28 countries. The return data reveal a substantial amount of variation in mean real estate returns and standard deviations across countries. Moreover, standard Treynor ratios, which scale country excess returns by the estimated beta on the world wealth portfolio, also reveal substantial variation across countries in excess real estate returns per unit of systematic risk. However, when we estimate Jensens alphas using both single and multifactor specifications, we detect little evidence of abnormal, risk-adjusted returns at the country level. We do, however, find evidence of a strong world-wide factor in international real estate returns. Furthermore, even after controlling for the effects of world-wide systematic risk, an orthogonalized country-specific factor is highly significant. This suggests that real estate securities may provide international diversification opportunities.     

Some Tests of the Risk-Return Relationship Using Alternative Asset Pricing Models and Observed Expected Returns

This study examines the performance of three asset pricing models: the CAPM, the APT and the UAPT using observed expected returns from a three-phase dividend discount model with Value Line analyst estimates of future company-level earnings, dividends and growth rates. Our study is the first we know of to test the three major asset pricing models using observed expected returns. Our results are similar to prior research using ex post (realized) returns in that we find that the UAPT using macroeconomic factors is the best performing model, followed by the APT and the CAPM. However, our results also suggest that the importance of macroeconomic factors is much greater to expected returns than to realized returns, and the corresponding R2 values for models using expected returns are much higher than for models using realized returns. Combining our results for the UAPT with those of Marston and Harris (1993) for the CAPM suggests that these models are more successful in tests using observed expected returns than in tests using realized returns as proxies for expected returns. Unit root tests suggest that monthly observed expected returns follow the classic random walk without drift model while monthly realized returns do not.     

The international co-movements of Finish stocks

This paper provides new empirical evidence on the international co-movements of Finnish stocks. The vector autoregression (VAR) approach indicates that US and especially Swedish stock markets lead Finnish stock market returns by approximately one or two months. The results based on international market models indicate that the returns of individual Finnish stocks are significantly positively related to those of Sweden, while the relation between Finnish and US returns is significantly lower. The relation seems to vary clearly between industries, some industries being related to US markets as well. Significant time-series instability is reported in the results, however.     

The Cross-Section of Expected Stock Returns: New Evidence from an Emerging Market

Over 300 factors have been found to explain the cross-section of expected stock returns. Empirical studies also show that findings from multifactor asset-pricing models have not been consistent in an emerging market. Using DuPont analysis and a residual income valuation model for 284 nonfinancial companies on Ho Chi Minh Stock Exchange during the period 2008–2014, findings suggest that the return on equity and its change are informative for stock returns in Vietnam. In addition, the level of capital turnover, financial cost ratio (FCR), and changes in capital and in the FCR contain incremental explanatory power for stock returns.     

The Robustness of the Conditional CAPM with Human Capital

An empirical evaluation is provided of the robustness of theconditional capital asset pricing model (CAPM) with human capitalto explain the cross-sectional variability of security returns.This model has been evaluated in the literature using the growthrate in per capita labor income. This article looks at richermeasures of human capital returns. It develops measures thatincorporate the costs and benefits of educational investment,skill premiums, worker experience, and other relevant featuresof human capital markets. It also considers variables that helpto forecast future human capital returns. We find that someof these richer measures help improve substantially the performanceof the model.     

Dynamic Spanning in the Consumption-Based Capital Asset Pricing Model

Under the assumptions of the Consumption-based Capital Asset Pricing Model (CCAPM), Pareto optimal consumption allocations are characterized by each agent's consumption process being adapted to the filtration generated by the aggregate consumption process of the economy. The wealth processes of the agents, however, are adapted to the finer filtration generated by aggregate consumption and the conditional distribution of future aggregate consumption. Therefore, in order to achieve Pareto optimal consumption allocations, a sufficiently varied set of assets must exist such that any wealth process adapted to this finer filtration can be implemented by dynamically trading in that set of assets. We provide sufficient conditions for the existence of such a set of assets based on dynamically trading contingent claims on aggregate consumption. In addition, we give sufficient conditions for the existence of equilibria in a dynamically effectively complete market in which agents are only able to trade in contingent claims on aggregate consumption, the market portfolio of firms, and a (numeraire) zero-coupon bond. We demonstrate the role of short- and long-term contingent claims on aggregate consumption for the implementation of Pareto optimal allocations in the presence of short- andlong-term risks. In addition, in the presence of personal risks, we demonstrate the role of insurance contracts.     

Economic Risk Factors and Commercial Real Estate Returns

A great deal of research has focused on the links between stock and bond market returns and macroeconomic events such as fluctuations in interest rates, inflation rates, and industrial production. Although the comovements of real estate and other asset prices suggests that these same systematic risk factors are likely to be priced in real estate markets, no study has formally addressed this issue. This study identifies the growth rate in real per capita consumption, the real T-bill rate, the term structure of interest rates, and unexpected inflation as fundamental drivers or state variables that systematically affect real estate returns. The finding of a consistently significant risk premium on consumption has important ramifications for the vast literature that has examined the (risk-adjusted) performance of real estate, for it suggests that prior findings of significant abnormal returns (either positive or negative) that have ignored consumption are potentially biased by an omitted variables problem. The results also have important implications for dynamic asset allocation strategies that involve the predictability of real estate returns using economic data.     

Profitability,Value, and Stock Returns in Production‐Based Asset Pricing without Frictions

In a production‐based asset pricing model without adjustment costs and with decreasing returns to scale following Brock (1982), stock returns at the firm level are determined by profitability, the book‐to‐market ratio, and the change in future profitability prospects. Although firms with low book‐to‐market ratios are normally more profitable and profitable firms are predicted to have higher returns, the stylized fact that book‐to‐market ratios positively forecast returns still holds theoretically, but with specific predicted exceptions. These implications are confirmed empirically.     

An Empirical Examination of U.K. International Unit Trust Performance

We examine the performance of U.K. unit trusts with international equity objectives between January 1985 and December 2000 using four international factor models. The international version of the Carhart (1997) model performs the best in explaining the cross-section of international stock returns. There is little evidence of superior performance by international trusts relative to the global models. We also find that the choice between a local and global version of the Carhart model has a significant impact on the relation between the investment sector of the trust and performance.JEL classification: G10, G12