scholarly journals Coskewness Risk Decomposition, Covariation Risk, and Intertemporal Asset Pricing

2018 ◽  
Vol 54 (1) ◽  
pp. 335-368 ◽  
Author(s):  
Petko S. Kalev ◽  
Konark Saxena ◽  
Leon Zolotoy
Keyword(s):  
Asset Pricing ◽  
Cash Flows ◽  
Market Returns ◽  
Risk Decomposition ◽  
Return Decomposition ◽  
Equity Risk ◽  
Second Moments ◽  
Book To Market Ratio ◽  
Intertemporal Asset Pricing ◽  
Discount Rate News

We develop an intertemporal asset pricing model where cash-flow news, discount-rate news, and their second moments are priced by the market. This model generalizes the market-return decomposition framework, showing that intertemporal considerations imply a decomposition of squared market returns (coskewness risk). Our model accounts for 68% of the return variation across portfolios sorted by size, book-to-market ratio, momentum, investment, and profitability for a modern U.S. sample period. Further, our findings highlight the importance of covariation risk, that is, the risk of simultaneous unfavorable shocks to cash flows and discount rates, in understanding equity risk premia.

scholarly journals Bad Beta, Good Beta

2004 ◽  
Vol 94 (5) ◽  
pp. 1249-1275 ◽  
Author(s):  
John Y Campbell ◽  
Tuomo Vuolteenaho
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Poor Performance ◽  
Cash Flows ◽  
Value Stocks ◽  
Market Portfolio ◽  
Asset Pricing Theory ◽  
Price Of Risk ◽  
Growth Stocks ◽  
Intertemporal Asset Pricing

This paper explains the size and value “anomalies” in stock returns using an economically motivated two-beta model. We break the beta of a stock with the market portfolio into two components, one reflecting news about the market's future cash flows and one reflecting news about the market's discount rates. Intertemporal asset pricing theory suggests that the former should have a higher price of risk; thus beta, like cholesterol, comes in “bad” and “good” varieties. Empirically, we find that value stocks and small stocks have considerably higher cash-flow betas than growth stocks and large stocks, and this can explain their higher average returns. The poor performance of the capital asset pricing model (CAPM) since 1963 is explained by the fact that growth stocks and high-past-beta stocks have predominantly good betas with low risk prices.

Do Financially Constrained Firms Earn Higher Returns than the Unconstrained Firms? A Comprehensive Evidence from Pakistan Stock Exchange

2020 ◽  
Keyword(s):  
Time Series ◽  
Asset Pricing ◽  
Capital Structure ◽  
Stock Returns ◽  
Financial Constraints ◽  
Stock Exchange ◽  
Cash Flows ◽  
Total Asset ◽  
Cash Holding ◽  
The Relationship

This paper examines the relationship between financial constraints and the stock returns explaining the pricing of stock through financially constrained and unconstrained firms in Pakistan. Three proxies; total assets, tangible to total assets and cash holding to total assets ratios) have been used for financial constraints and the study tried to investigate that either the investors are compensated for taking the extra risk or not in Pakistan Stock Exchange (PSX). We find that the financially constrained firms don’t earn higher returns when their capital structure is heavy with liquid assets and their cash flows are more than the unconstrained firms in PSX. Moreover, the time series results showed that the risk-adjusted returns of the most constrained firms give the mix and somewhat negative and significant and insignificant results for the Pakistani firms listed in PSX sorted based on tangible to total assets and Cash holding to total asset ratios. Keywords: Asset Pricing, Financial constraints, risk-adjusted performance of portfolios

Money and the C-CAPM

2009 ◽  
Vol 44 (2) ◽  
pp. 337-368 ◽  
Author(s):  
Ronald J. Balvers ◽  
Dayong Huang
Keyword(s):  
Asset Pricing ◽  
Explanatory Power ◽  
Capital Asset Pricing ◽  
Money Growth ◽  
Liquidity Shocks ◽  
A Value ◽  
Asset Pricing Models ◽  
Monetary Economy ◽  
Growth Firms ◽  
Intertemporal Asset Pricing

AbstractWe consider asset pricing in a monetary economy where liquid assets are held to lower transaction costs. The ensuing model extends the capital asset pricing model (CAPM) and the consumption CAPM by deriving real money growth as an additional factor determining returns. Empirically, the two model versions compare favorably to other theoretical asset pricing models along several dimensions, supporting the traditional intertemporal asset pricing perspective. A value premium arises because value firms are sensitive to liquidity shocks but growth firms are not. Although no alternative factor drives out the money growth factor, the conditioning CAY factors of Lettau and Ludvigson (2001b) add explanatory power.

Commodity Risk Factors and Intertemporal Asset Pricing

2014 ◽  
Author(s):  
Joelle Miffre ◽  
Ana-Maria Fuertes ◽  
Adriin Fernnndez-PPrez
Keyword(s):  
Risk Factors ◽  
Asset Pricing ◽  
Intertemporal Asset Pricing
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