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We provide a model for why high beta assets are more prone to speculative overpricing than low beta ones. When investors disagree about the common factor of cash-flows, high beta assets are more sensitive to this macro-disagreement and experience a greater divergence-of-opinion about their...
Persistent link: https://www.econbiz.de/10012460112
This paper breaks assets' betas with common factors into components attributable to news about future cash flows, real interest rates, and excess returns. To achieve this decomposition the paper uses a vector autoregressive time-series model and an approximate log-linear present value relation....
Persistent link: https://www.econbiz.de/10012474630
this paper, we compare two formulations of the Capital Asset Pricing Model. The traditional CAPM suggests that the … appropriate measure of an asset's risk is the covariance of the asset's return with the market return. The consumption CAPM, on …
Persistent link: https://www.econbiz.de/10012477690
Adding a return factor based on capital investment into standard, calendar-time factor regressions makes underperformance following seasoned equity offerings largely insignificant and reduces its magnitude by 37-46%. The reason is that issuers invest more than nonissuers matched on size and...
Persistent link: https://www.econbiz.de/10012467221
Persistent link: https://www.econbiz.de/10012467541
International equity returns are characterized by episodes of high volatility and unusually high correlations coinciding with bear markets. We develop models of asset returns that match these patterns and use them in asset allocation. First, the presence of regimes with different correlations...
Persistent link: https://www.econbiz.de/10012468614
There is an ongoing debate in the literature about the apparent weak or negative relation between risk (conditional variance) and return (expected returns) in the aggregate stock market. We develop and estimate an empirical model based on the ICAPM to investigate this relation. Our primary...
Persistent link: https://www.econbiz.de/10012468770
We present a model in which some investors are prohibited from using leverage and other investors' leverage is limited by margin requirements. The former investors bid up high-beta assets while the latter agents trade to profit from this, but must de-lever when they hit their margin constraints....
Persistent link: https://www.econbiz.de/10012462057
value premium is larger in "bad times," due to time variation in risk preferences; (c) the unconditional CAPM fails, because … conditional CAPM and a Fama and French (1993) HML factor outperform the unconditional CAPM …
Persistent link: https://www.econbiz.de/10012466855
We use a standard single-agent model to conduct a simple consumption growth accounting exercise. Consumption growth is driven by news about current and expected future returns on the market portfolio. The market portfolio includes financial and human wealth. We impute the residual of consumption...
Persistent link: https://www.econbiz.de/10012467114