Empirical Asset Pricing with Individual Assets on the JSE : Betas versus Characteristics
The study adopts the instrumental variables (IV) and Shanken’s (1992) bias-adjusted estimator to mitigate the inherent errors-in-variables bias in Fama-MacBeth (FM, 1972) regression while allowing the use of individual stocks as test assets to avoid the shortcomings of using portfolios. Additionally, this study compares the explanatory power of cross-sectional (CS) factors and time-series (TS) factors on asset average returns under the Carhart 4-factor model (1997). In small sample simulations, Shanken's estimator consistently delivers consistent ex-post risk premium estimates, while FM-IV failed to mitigate EIV bias due to serial correlation among measurement errors of overlapping beta estimates. As a result of empirical asset pricing tests, factors like market, size, value and momentum under the CAPM, the Fama-French 3- and Carhart 4-factor models are significantly priced on the cross-section, while the slope coefficients of their matching characteristics are also statistically significant. It is also shown by using fixed effects estimation that the significance of these characteristics is not caused by their correlation with omitted and potentially unobserved firm-specific factors. Moreover, a comparison of TS and CS factors under the Carhart4-factor model shows that time-varying characteristics are better proxies for true factor loadings, while their slope coefficients (CS factors) as optimised by the FM regression provide a better description of cross-sectional average returns than TS factors that are arbitrarily constructed
Year of publication: |
[2022]
|
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Authors: | Lin, Runxin |
Publisher: |
[S.l.] : SSRN |
Subject: | CAPM | Betafaktor | Beta risk | Risikoprämie | Risk premium | Kapitalmarkttheorie | Financial economics | Südafrika | South Africa | Kapitaleinkommen | Capital income |
Saved in:
freely available
Extent: | 1 Online-Ressource (84 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 5, 2022 erstellt |
Other identifiers: | 10.2139/ssrn.4154502 [DOI] |
Classification: | G12 - Asset Pricing |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10013404308
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