Empirical test of the efficiency of the UK covered warrants market: Stochastic dominance and likelihood ratio test approach

This paper represents the first attempt to apply a stochastic dominance (SD) approach to examine the efficiency of the UK covered warrants market. Our empirical analyses reveal that neither covered warrants nor their underlying shares stochastically dominate the other, indicating the nonexistence of potential arbitrage gains in either wealth or utility, which implies market efficiency. To complement the SD results, we also employ a likelihood ratio (LR) test to examine information efficiency. A bootstrap methodology is developed to correct the size distortion of the LR test. Our findings show that UK covered warrant returns efficiently reflect the return information of the underlying shares.     

A mean-variance framework for tests of asset pricing models

This article presents a mean-variance framework for likelihood-ratiotests of asset pricing models. A pricing model is tested byexamining the position of one or more reference portfolios insample mean-standard-deviation space. Included are tests ofboth single-beta and multiple-beta relations, with or withouta riskless asset, using either a general or a specific alternativehypothesis. Tests with a factor that is not a portfolio returnare also included. The mean-variance framework is illustratedby testing the zero-beta CAPM, a two-beta pricing model, andthe consumption-beta model.     

Exact distribution-free tests of mean-variance efficiency

This paper develops exact distribution-free tests of unconditional mean-variance efficiency. These new tests allow for unknown forms of non-normalities, conditional heteroskedasticity, and other non-linear temporal dependencies among the absolute values of the error terms in the asset pricing model. Exactness here rests on the assumption that the joint temporal error density is symmetric around zero. This still leaves open the possibility of return distribution asymmetry via coskewness with the benchmark portfolio. A simulation study shows that the new tests have very good power relative to that of many commonly used tests. The inference procedures developed are further illustrated by tests of the mean-variance efficiency of a market index using a 42-year sample of monthly returns on ten U.S. equity portfolios.     

The residual market factor,the APT,and mean-variance efficiency

The rapidly increasing volume of both published and unpublished work on the arbitrage pricing theory (APT) of Ross (1976) has given rise to a number of misunderstandings at the interface of theoretical and econometric work. In this article we extend the theoretical structure of our previous work (McElroy and Burmeister, 1985, 1988; Burmeister and McElroy, 1987, 1988) to provide a broad yet rigorous framework both for econometric estimation and for better economic interpretation of new empirical results. We begin with the case where allK factors are observed, and then present the second case ofK−1≡J observed APT factors and one unobserved factor, theresidual market factor introduced in McElroy and Burmeister (1985). The economic interpretations for equivalent specifications of this model are discussed, and we enumerate several immediate payoffs to these specifications. The main new results are concerned with the sometimes intricate relationships among APT models withK factors and APT models withK factors that are constrained to satisfy mean-variance efficiency restrictions. These results are not only of theoretical interest, but more importantly they provide the basis for econometric estimation and testing of nested hypotheses. These econometric issues are discussed in detail.     

On market efficiency of Asian foreign exchange rates: evidence from a joint variance ratio test and technical trading rules

This study employs a joint variance ratio test and technical trading rules to examine the random walk behavior for nine Asian foreign exchange rates for the period 1988–1995. The joint variance ratio test results suggest that there is little evidence of serial correlations in the daily exchange rate series. The results also indicate that, in general, the moving average and channel trading rules do not generate significant, positive profits.     

The profitability of asset sales as an explanation of asset divestitures

Using Korean fixed asset divestiture data, I extend the investigation of the financing hypothesis of divestitures proposed by Lang et al. (Lang, L., Poulsen, A., Stulz, R., 1995. Asset sales, firm performance, and the agency costs of managerial discretion, Journal of Financial Economics 37, 3.37). In particular, I take into account the profitability of announced asset divestitures and I employ a unique sample constructed to avoid effects that might confound the results. I also take into account the financial condition of the selling firms. The results are consistent with the financing hypothesis proposed by Lang et al. and show that the financing hypothesis of divestitures is robust to controls for the profitability of asset sales and the financial condition of selling firms.     

The 4% strategy revisited: a pre-commitment mean-variance optimal approach to wealth management

In contrast to single-period mean-variance (MV) portfolio allocation, multi-period MV optimal portfolio allocation can be modified slightly to be effectively a down-side risk measure. With this in mind, we consider multi-period MV optimal portfolio allocation in the presence of periodic withdrawals. The investment portfolio can be allocated between a risk-free investment and a risky asset, the price of which is assumed to follow a jump diffusion process. We consider two wealth management applications: optimal de-accumulation rates for a defined contribution pension plan and sustainable withdrawal rates for an endowment. Several numerical illustrations are provided, with some interesting implications. In the pension de-accumulation context, Bengen (1994)’s [J. Financial Planning, 1994, 7, 171–180], historical analysis indicated that a retiree could safely withdraw 4% of her initial retirement savings annually (in real terms), provided that her portfolio maintained an even balance between diversified equities and U.S. Treasury bonds. Our analysis does support 4% as a sustainable withdrawal rate in the pension de-accumulation context (and a somewhat lower rate for an endowment), but only if the investor follows an MV optimal portfolio allocation, not a fixed proportion strategy. Compared with a constant proportion strategy, the MV optimal policy achieves the same expected wealth at the end of the investment horizon, while significantly reducing the standard deviation of wealth and the probability of shortfall. We also explore the effects of suppressing jumps so as to have a pure diffusion process, but assuming a correspondingly larger volatility for the latter process. Surprisingly, it turns out that the MV optimal strategy is more effective when there are large downward jumps compared to having a high volatility diffusion process. Finally, tests based on historical data demonstrate that the MV optimal policy is quite robust to uncertainty about parameter estimates.     

Trading frequency and asset pricing on the London Stock Exchange: Evidence from a new price impact ratio

This study proposes a new price impact ratio as an alternative to the widely used Amihud’s (2002) Return-to-Volume ratio. We demonstrate that the new price impact ratio, which is deemed Return-to-Turnover ratio, has a number of appealing features. Using daily data from all stocks listed on the London Stock Exchange over the period 1991–2008, we provide overwhelming evidence that this ratio, while being unequivocal to construct and interpret, is also free of a size bias. More importantly, it encapsulates the stocks’ cross-sectional variability in trading frequency, a relatively neglected but possibly important determinant of stock returns given the recently observed trends in financial markets. Overall, our findings argue against the conventional wisdom that there is a simple direct link between trading costs and stock returns by strongly suggesting that it is the compound effect of trading frequency and transaction costs that matters for asset pricing, not each aspect in isolation.     

Trading volatility spreads: a test of index option market efficiency

If returns on two assets share common volatility components, the prices of options on the assets should be interdependent and the implied volatility spread should mean revert. We first demonstrate, using the canonical correlation method, that there is a common component in the volatilities of the returns on S&P 100 and S&P 500 indices. We then exploit this commonality by trading on the volatility spread between tick-by-tick OEX and SPX call options listed on the CBOE. Our vega-delta-neutral strategies generated significant profits, even after transaction costs are taken into account. The results suggest that the two options markets are not jointly efficient.     

The second fundamental theorem of asset pricing: a new approach

This article presents a new definition of market completenessthat is independent of the notions of no arbitrage and equivalentmartingale measures. Our definition has many advantages, allshown herein. First, it preserves the Second Fundamental Theoremof Asset Pricing, even in complex economies. Second, under ourdefinition, the market can be complete yet arbitrage opportunitiesexist. This is important in practice, and stands in contrastto the traditional definitions. Third, under the assumptionsof no arbitrage and when used in the standard models, our definitionis equivalent to the traditional one.     

Optimal loan-to-value ratio and the efficiency gains of default

We study the optimal loan-to-value (LTV) ratio in a monetary general equilibrium model with heterogeneous agents, collateral default, production and a banking sector. We find that the welfare of the debtor is not monotonically increasing in the LTV ratio, i.e. tighter financing constraints can be welfare-improving for the debtor. Moreover, the optimal LTV ratio for both the debtor and the creditor allows for the possibility of ex post default. Collateral default enhances efficiency by allowing for better consumption smoothing and risk hedging. Our result improves the argument in Dubey et al. (Econometrica 73(1):1–37, 2005) and Zame (Am Econ Rev 83(5):1142–1164, 1993), which use default penalties instead of collateral to induce repayment and show the efficiency gains of default.     

Fair valuation of insurance liabilities via mean-variance hedging in a multi-period setting

A general class of fair valuations which are both market-consistent (mark-to-market for any hedgeable part of a claim) and actuarial (mark-to-model for any claim that is independent of financial market evolutions) was introduced in Dhaene et al. [Insurance: Mathematics & Economics, 76, 14–27 (2017)] in a single period framework. In particular, the authors considered mean-variance hedge-based (MVHB) valuations where fair valuations of insurance liabilities are expressed in terms of mean-variance hedges and actuarial valuations. In this paper, we generalize this MVHB approach to a multi-period dynamic investment setting. We show that the classes of fair valuations and MVHB valuations are equivalent in this generalized setting. We derive tractable formulas for the fair valuation of equity-linked contracts and show how the actuarial part of their MVHB valuation decomposes into a diversifiable and a non-diversifiable component.     

The evolution of capital asset pricing models

The capital asset pricing models (CAPM) has been the benchmark of asset pricing models and has been used to calculate asset returns and the cost of capital for more than four decades. Many researchers have tried to relax the original assumptions and generalize the static CAPM. We survey the important alternative theoretical models of capital asset pricing and provide a complete review of the evolution of asset pricing models. We also discuss the interrelationships among these models and suggest several possible directions for future research. Our results might be used as a guideline for future theoretical and empirical research in capital asset pricing.     

中国资管的历史性机遇

在以"依法治国与资产管理市场改革"为主题的中国财富管理50人论坛第三届年会上,交通银行资产管理中心总裁马续田指出,中国资产管理与全球领先水平差距巨大,必须抓住人民币国际化等历史机遇,稳步迈向国际化、全球化。他说中国资管行业遥望全球巨人中国国内银行理财的发展速度是非常快的,十年时间从零到15万亿人民币,平均每年增长40%。但是与全球的资产管理巨人相比,还有非常大的差距。通过以下几个指标可以看出来。一是AUM的规模。目前中国国内银行最大的资产管理规模两万多亿人民币,相当于三千多亿美元。全球主     

Capital asset prices versus time series models as predictors of inflation: The expected real rate of interest and market efficiency

This paper examines the robustness of one month treasury bills as predictors of inflation. The evidence is inconsistent with the joint hypothesis that (1) the expected real rate of interest was constant for one-month bills and (2) that markets are efficient with regard to the time series of inflation. When the expected real rate of interest is set equal to the conditional expectation given the time series of real rates, the results are much more consistent with the efficient markets model. In more positive terms, the failure to confirm market efficiency appears to be the result of naive estimates of the expected real rate.     

无形资产评估方法探讨

本文从无形资产概念的讨论开始,然后强调了无形资产的作用,最后主要探讨了无形资产的评估方法,提出无形资产的评估方法一般都应该是市场法,认为收益能力法应该成为无形资产评估的主要方法.     

The capital asset pricing model as a general equilibrium with incomplete markets

We recast the capital asset pricing model (CAPM) in the broader context of general equilibrium with incomplete markets (GEI). In this setting we give proofs of three properties of CAPM equilibria: they are efficient, asset prices lie on a security market line, and all agents hold the same two mutual funds. The first property requires a riskless asset, the latter two do not. We show that across all GEI only one of these three properties of equilibrium is generally valid: asset prices depend on covariances, not variances. We extend CAPM to many consumption goods in such a way that all three properties hold. But now the definition of a riskless asset depends on preferences and endowments, and so cannot be specifieda priori.We wish to acknowledge assistance of NSF Grant No. 88-12051, and a referee's comments. We are grateful for conversations with H. Polemarchakis, especially concerning Section II.4.     

The behavior of risky asset prices in a symmetric least squares learning environment

This paper examines the dynamics of asset prices in a heterogeneous market. Traders are made up of learners who possess limited information and use limited models for predicting the future. The market also includes noise traders in the sense of Black, along with liquidity traders. Learners revise their prediction equations using least squares learning as defined by Marcet and Sargent. We derive the equilibrium price process and show how convergence is obtained. The price process is shown to have a number of interesting properties that are consistent with propositions outlined by Black. Numerical calculations for several examples illuminate how learning takes place in the model.