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.     

Kernel Conditional Quantile Estimation for Stationary Processes with Application to Conditional Value-at-Risk

The paper considers kernel estimation of conditional quantilesfor both short-range and long-range-dependent processes. Undermild regularity conditions, we obtain Bahadur representationsand central limit theorems for kernel quantile estimates ofthose processes. Our theory is applicable to many price processesof assets in finance. In particular, we present an asymptotictheory for kernel estimates of the value-at-risk (VaR) of themarket value of an asset conditional on the historical informationor a state process. The results are assessed based on a smallsimulation and are applied to AT&T monthly returns.     

Estimation of expected return: CAPM vs. Fama and French

Most practitioners favour a one-factor model (CAPM) when estimating expected return for an individual stock. For estimation of portfolio returns, academics recommend the Fama and French three-factor model. The main objective of this paper is to compare the performance of these two models for individual stocks. First, estimates for individual stock returns based on CAPM are obtained using different time frames, data frequencies, and indexes. It is found that 5 years of monthly data and an equal-weighted index, as opposed to the commonly recommended value-weighted index, provide the best estimate. However, performance of the model is very poor; it explains on average 3% of differences in returns. Then, estimates for individual stock returns are obtained based on the Fama and French model using 5 years of monthly data. This model, however, does not do much better; independent of the index used, it explains on average 5% of differences in returns. These results therefore bring into question the use of either model for estimation of individual expected stock returns.     

Estimation and Evaluation of Conditional Asset Pricing Models

We find that several recently proposed consumption‐based models of stock returns, when evaluated using an optimal set of managed portfolios and the associated model‐implied conditional moment restrictions, fail to capture key features of risk premiums in equity markets. To arrive at these conclusions, we construct an optimal Generalized Method of Moments (GMM) estimator for models in which the stochastic discount factor (SDF) is a conditionally affine function of a set of priced risk factors, and we show that there is an optimal choice of managed portfolios to use in testing a null model against a proposed alternative generalized SDF.     

二代支付系统结构设计之比较

由资金转移规则和技术实现手段组成的支付系统是现代市场经济条件下货币体系中不可分割的一部分,良好的支付系统对于安全、高效地转移货币债权并结算支付交易、限制金融风险通过支付渠道在不同金融机构和市场之间传播起着关键作用。由于支付系统与市场经济活动,计算机和通讯技术的发展等因素密切相关,使得支付系统总是处在持续改进中,我国的支付系统建设也面临同样的问题。     

A comparison of the APT and CAPM a note

The single factor version of Ross' arbitrage pricing theory and the Sharpe-Lintner-Mossin capital asset pricing model offer deceptively similar pricing relationships. This paper derives conditions for the equivalence of the two paradigms.     

Testing the CAPM with Time-Varying Risks and Returns

This paper draws on Engle's autoregressive conditionally heteroskedastic modeling strategy to formulate a conditional CAPM with time-varying risk and expected returns. The model is estimated by generalized method of moments. A CAPM that allows mean excess returns to shift in January survives generalized method of moments specification tests for a number of omitted variables. However, a residual dividend yield component is found to remain in the excess returns of smaller firms. We find significant monthly and quarterly components in the risk premia and beta estimates.     

Testing the CAPM with broader market indexes: A problem of mean-deficiency

This study addresses a problem that can arise when a broader market index is used to test the CAPM: a return series used in the index can exclude part of an asset's return. If the excluded return is constant, then a test of mean-variance efficiency can be constructed, but an additional parameter must be estimated. This point is illustrated in tests with both broader market indexes and stocks-only indexes. The broader indexes exclude the rental return on real estate and durables. The excluded rental return is estimated under the assumption that the index portfolio is mean-variance efficient.     

Options Trading and the CAPM

This article studies equilibrium asset pricing when agents facenonnegative wealth constraints. In the presence of these constraintsit is shown that options on the market portfolio are nonredundantsecurities and the economy's pricing kernel is a function ofboth the market portfolio and the nonredundant options. Thisimplies that the options should be useful for explaining riskyasset returns. To test the theory, a model is derived in whichthe expected excess return on any risky asset is linearly related(via a collection of betas) to the expected excess return onthe market portfolio and to the expected excess returns on thenonredundant options. The empirical results indicate that thereturns on traded index options are relevant for explainingthe returns on risky asset portfolios.     

CAPM and APT-like models with risk measures

The paper deals with optimal portfolio choice problems when risk levels are given by coherent risk measures, expectation bounded risk measures or general deviations. Both static and dynamic pricing models may be involved. Unbounded problems are characterized by new notions such as (strong) compatibility between prices and risks. Surprisingly, the lack of bounded optimal risk and/or return levels arises for important pricing models (Black and Scholes) and risk measures (VaR, CVaR, absolute deviation, etc.). Bounded problems present a Market Price of Risk and generate a pair of benchmarks. From these benchmarks we introduce APT and CAPM-like analyses, in the sense that the level of correlation between every available security and some economic factors explains the security expected return. The risk level non correlated with these factors has no influence on any return, despite the fact that we are dealing with risk functions beyond the standard deviation.     

The Conditional Distribution of Real Estate Returns: Are Higher Moments Time Varying?

Previous research has shown that the returns on individual properties and listed property securities are skewed. This claim is investigated in the context of listed U.K. property companies and U.S. REITs. In particular, the shape of the conditional distribution of total monthly returns is examined for a group of 20 U.K. companies and 20 REITs. Also investigated is the claim that the skewness found in property returns varies over time. Using the model of Hansen (1994), it is found that while a large portion of property security returns in the sample do exhibit skewness in the conditional distribution only in a few instances is there time variation in the skewness parameter. There is little evidence to suggest that skewness is associated with the economic cycle.     

Using Generalized Method of Moments to Test Mean-Variance Efficiency

This paper develops tests of unconditional mean-variance efflciency under weak distributional assumptions using a Generalized Method of Moments framework. These tests are potentially more robust than commonly employed tests which rely on the assumption that asset returns are normally distributed and temporarily i.i.d. Using returns for size-based portfolios from 1926 to 1988 we show that the conclusion concerning the mean-variance effilciency of market indexes can be sensitive to the test considered.     

考虑流动性的三阶矩资本资产定价的理论模型与实证研究

本文把流动性风险、偏态风险引进传统CAPM模型中,推导出基于流动性的三阶矩资本资产定价的理论模型。本文的模型表明,证券(组合)的收益依赖于它的期望流动性成本、其流动性成本和市场流动性成本的协方差以及其收益和市场收益的协方差与协偏态。本文采用我国A股市场的股票收益数据对模型进行了实证检验.检验结果表明,我国A股市场的证券(组合)的风险溢价在大盘升降区间体现了不同的特征,无论是在全样本区间还是两个子样本区间,基于流动性的三阶矩资本资产定价模型都能更好的拟合资产收益,说明了流动性和偏态因素在我国A股市场的资产定价中有重要影响。     

The Hazard Rates of First and Second Defaults

This article examines hazards of repeated mortgage default, conditional on reinstating out of an initial default episode. Results indicate that subsequent default risk for reinstated borrowers is significantly greater than the risk of first default, especially during the first two years after a default episode. In addition, economic factors helpful in predicting first defaults are not helpful in predicting subsequent default episodes. This has important implications for mortgage investors and servicers as industry foreclosure avoidance efforts intensify.     

Return decomposition and the Intertemporal CAPM

The Intertemporal CAPM (ICAPM) from 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 for 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.     

The Value Premium and the CAPM

We examine (1) how value premiums vary with firm size, (2) whether the CAPM explains value premiums, and (3) whether, in general, average returns compensate β in the way predicted by the CAPM. Loughran's (1997) evidence for a weak value premium among large firms is special to 1963 to 1995, U.S. stocks, and the book‐to‐market value‐growth indicator. Ang and Chen's (2005) evidence that the CAPM can explain U.S. value premiums is special to 1926 to 1963. The CAPM's more general problem is that variation in β unrelated to size and the value‐growth characteristic goes unrewarded throughout 1926 to 2004.     

A Monte Carlo investigation of the accuracy of multivariate CAPM tests

In a multivariate regression model relating individual returns to the market return, CAPM implies non-linear restrictions on the parameters. Several asymptotically valid tests of these restrictions have been suggested. The existing Monte Carlo evidence shows that some of these tests are unreliable for reasonable sample sizes, but does not indicate well which tests are reliable. This paper reports the results of an extensive Monte Carlo experiment. Shanken's CSR test and Jobson and Korkie's corrected likelihood ratio test are quite accurate in all cases we consider.     

Multivariate tests of the zero-beta CAPM

A ‘cross-sectional regression test’ (CSRT) of the CAPM is developed and its connection to the Hotelling T² test of multivariate statistical analysis is explored. Algebraic relations between the CSRT, the likehood ratio test and the Langrange multiplier test are derived and a useful small-sample bound on the distribution function of the CSRT is obtained. An application of the CSRT suggests that the CRSP equally-weighted index is inefficient, but that the inefficiency is not explained by a firm size-effect from February to December.