This paper studies multifactor asset pricing in the presence of Markov regime switches. We present a state-dependent version of the Fama and French (1993) model. Performance of the unconditional Fama-French model is quite poor in some subperiods, in particular in recent years. The...

In this paper I point out the role assumed by behavioral finance in order to explain financial market trend in the last few years, which doesn't seem to respect classical financial theory principles: price equals stock fundamental value.The two approaches make two different assumptions. The...

This paper studies multifactor asset pricing in the presence of Markov regime switches. We present a state-dependent version of the Fama and French (1993) model. Performance of the unconditional Fama-French model is quite poor in some subperiods, in particular in recent years. The...

This paper offers a continuous time, general equilibrium model where a risky asset is traded among risk-averse overconfident investors. Two kinds of overconfidence are introduced: investors exhibit relative overconfidence if each investor believes her model is better than others' and aggregate...

The time value of money (TVM) equation is a core equation in finance. It is often differentiated to obtain the interest rate sensitivity of whatever is being valued. In fixed income analysis the result is incorporated into the concept known as duration. It is well known, however, that the...

We show that out-of-sample tests used in the time-series predictability literature may suffer from test-size problems related to the common practice of exogenous specification of critical parameters, such as the choice of predictive variables, traded assets, and in-sample estimation periods. We...

This paper applies the methodology of Bai and Ng (2002, 2004) for decomposing large panel data into systematic and idiosyncratic components to both returns and turnover. Combining the methodology with a generalized-least-squares-based principal components procedure, we demonstrate that this...

We provide simple methods of constructing known results. At the core of our methods is the identification of a simple concise basis that spans the Capital Market Line (CML). We show that a portfolio whose risky assets weights are the product of the inverse variance-covariance matrix of...

This is an introduction to a five-volume collection of papers on financial econometrics to be published by Edward Elgar Publishers in 2007. Financial econometrics is one of the fastest growing branches of economics today, both in academia and in industry. The increasing sophistication of...

This paper derives a multibeta representation theorem for pricing assets using arbitrary reference variables that are not necessarily the true factors. Under this theorem, the upper bound on pricing deviations depends upon the correlations not only between the reference variables and the factors...