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Variance bounds on the permanent and transitory components of stochastic discount factors
Bakshi, Gurdip S.; Chabi-Yo, Fousseni - 2011
In this paper, we develop lower bounds on the variance of the permanent component and the transitory component, and on the variance of the ratio of the permanent to the transitory components of SDFs. Exactly solved eigenfunction problems are then used to study the empirical attributes of asset...
Persistent link: https://www.econbiz.de/10009507305
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New entropy restrictions and the quest for better specified asset pricing models
Bakshi, Gurdip S.; Fousseni, Chabi-Yo - 2014
Under the setting that stochastic discount factors (SDFs) jointly price a vector of returns, this paper features entropy-based restrictions on SDFs, and its correlated multiplicative components, to evaluate asset pricing models. Specifically, our entropy bound on the square of the SDFs is...
Persistent link: https://www.econbiz.de/10010353301
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Stochastic Discount Factor in the Brazilian Equity Market (Fator de Desconto Estocástico no Mercado Acionário Brasileiro) (Portuguese)
Catalão, André Borges - 2010
This article implements the minimum variance frontier for the stochastic discount factor, according to both Hansen and Jagannathan (1991) and Cochrane and Hansen (1992), for the Brazilian stock market. Two approaches are considered in terms of equity returns and equity premium, respectively, the...
Persistent link: https://www.econbiz.de/10013138283
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Accounting Based Risk Measurement : An Alternative to CAPM Derived Discount Factors
Toms, Steve - 2012
Discount factors have a long tradition of being computed using capital market inputs for the estimation of systematic risk. They are of increasing importance in financial accounting, including the valuation of goodwill and other intangibles. In view of the volatility of stock market returns and...
Persistent link: https://www.econbiz.de/10013105994
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CAPM and DCF : Does SML Relationship Gives Cost of Equity? – Ex-Ante Stock Returns are Not Same as Implied Discount Rates
Murugesan, Narayanaswamy - 2013
When Capital Asset pricing Model (CAPM) is considered as valid asset pricing theory, Security Market Line (SML) is … returns need not be same as implied discount rates even when CAPM is applicable and markets are efficient. This is because the … over the forecast period. The single period return of CAPM changes every year as the market changes with economic …
Persistent link: https://www.econbiz.de/10013081162
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Computational Issues in the Stochastic Discount Factor Framework for Equity Risk Premium
Bhar, Ramaprasad - 2013
The Stochastic Discount Factor (SDF) methodology is a general and convenient framework for asset pricing. SDF encapsulates all the modeling uncertainties and its advantage is that we do not require the knowledge of investors' preferences. Suitable specification of SDF is, therefore, critical. It...
Persistent link: https://www.econbiz.de/10013072800
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Can Stochastic Discount Factor Models Explain the Cross Section of Equity Returns?
Abhakorn, Pongrapeeporn - 2016
the consumption-based capital asset pricing model (C-CAPM). Although the conditional covariances of returns with … consumption exhibit negative variation across size, they do not vary across the book-to-market ratio. Thus, the C-CAPM can capture … improves the fit of the C-CAPM, however. The value effect appears to be associated with book-to-market ratio as well as size …
Persistent link: https://www.econbiz.de/10013000288
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On the Definition of Discount Rates in a Multi-Period Equity Valuation Setting
Meitner, Matthias - 2012
The discount rate is one of the most critical variables in every equity valuation. Against this background it is surprising that so far there is no generally accepted definition of this term. Literature provides quite different definitions: expected returns, conditionally expected returns or...
Persistent link: https://www.econbiz.de/10013112572
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Market-Wide Illiquidity and the Volatility of a Model-Free Stochastic Discount Factor
Abad, David - 2020
We show that illiquidity risk matters for asset pricing independently of the specific functional form of the liquidity-based asset pricing model. Employing a non-parametric model-free stochastic discount factor (SDF), estimated using different sets of portfolio returns coming from both the stock...
Persistent link: https://www.econbiz.de/10012833972
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Long-term Discount Rates in the Cross Section of Stocks
Chen, Yixin - 2020
Long-term discount rate is different from short-term expected return. Long-term discount rate determines the level of equity valuation, whereas short-term return reflects the change in valuation. Long-term discount rate is relevant to corporate managers as it summarizes a firm's financing cost,...
Persistent link: https://www.econbiz.de/10012839075