scholarly journals A Single-Factor Consumption-Based Asset Pricing Model

2018 ◽  
Vol 54 (2) ◽  
pp. 789-827 ◽  
Author(s):  
Stefanos Delikouras ◽  
Alexandros Kostakis
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Empirical Support ◽  
Certainty Equivalent ◽  
Pricing Model ◽  
Single Factor ◽  
Consumption Growth ◽  
Multifactor Models ◽  
Asset Pricing Model ◽  
Disappointment Aversion

We propose a single-factor asset pricing model based on an indicator function of consumption growth being less than its endogenous certainty equivalent. This certainty equivalent is derived from generalized disappointment-aversion preferences, and it is located approximately 1 standard deviation below the conditional mean of consumption growth. Our single-factor model can explain the cross section of expected returns for size, value, reversal, profitability, and investment portfolios at least as well as the Fama–French multifactor models. Our results show strong empirical support for asymmetric preferences and question the effectiveness of the smooth utility framework, which is traditionally used in consumption-based asset pricing.

scholarly journals ZASTOSOWANIE TRÓJCZYNNIKOWEGO MODELU FAMY-FRENCHA I CAPM DLA WYBRANYCH SPÓŁEK NOTOWANYCH NA GPW W WARSZAWIE W LATACH 2007-2017

2019 ◽  
Vol 20 (2) ◽  
pp. 116-127
Author(s):  
Dorota Witkowska
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Single Factor ◽  
Capital Asset ◽  
Rates Of Return ◽  
Asset Pricing Model ◽  
Stock Indexes ◽  
Three Factor

Presented research aims in evaluation if three-factor model better describes rates of return than single-factor capital asset pricing model. Investigation concerns 30 selected companies listed on WSE in years 2007-2017. The whole period of analysis is divided into seven samples according to observed market tendency in Poland. Research is conducted for daily rates of return whereas comparative analysis is provided for portfolios constructed from companies belonging to stock indexes WIG20, mWIG40 and sWIG80.

scholarly journals Is Human Capital the Sixth Factor? Evidence from US Data

2019 ◽  
Vol 8 (1) ◽  
pp. 21-55 ◽  
Author(s):  
Rahul Roy ◽  
Santhakumar Shijin
Keyword(s):  
Human Capital ◽  
Asset Pricing ◽  
Factor Model ◽  
Generalized Method Of Moments ◽  
Common Factors ◽  
Return Predictability ◽  
Pricing Model ◽  
Gmm Estimation ◽  
Asset Return ◽  
Asset Pricing Model

Problem/Relevance: Measuring the risk of an asset and the economic forces driving the price of the risk is a challengingtask that preoccupied the asset pricing literature for decades. However, there exists no consensus on the integrated asset pricing framework among the financial economists in the contemporaneous asset pricing literature. Thus, we consider and study this research problem that has greater relevance in pricing the risks of an asset. In this backdrop, we develop an integrated equilibrium asset pricing model in an intertemporal (ICAPM) framework. Research Objective/Questions: Broadly we have two research objectives. First, we examine the joint dynamics of the human capital component and common factors in approximating the variation in asset return predictability. Second, we test whether the human capital component is the unaccounted and the sixth pricing factor of FF five-factor asset pricing model. Additionally, we assess the economic and statistical significance of the equilibrium six-factor asset pricing model. Methodology: The human capital component, market portfolio, size, value, profitability, and investment are the pricing factors of the equilibrium six-factor asset pricing model. We use Fama-French (FF) portfolios of 2  3, 5  5, 10  10 sorts, 2  4  4 sorts, and the Industry portfolios to examine the equilibrium six-factor asset pricing model. The Generalized method of moments (GMM) estimation is used to estimate the parameters of variant asset pricing models and Gibbons-Ross-Shanken test is employed to evaluate the performance of the variant asset pricing frameworks. Major Findings: Our approaches led to three conclusions. First, the GMM estimation result infers that the human capital component of the six-factor asset pricing model significantly priced the variation in excess return on FF portfolios of variant sorts and the Industry portfolios. Further, the sensitivity to human capital component priced separately in the presence of the market portfolios and the common factors. Second, the six-factor asset pricing model outperforms the CAPM, FF three-factor model, and FF five-factor model, which indicates that the human capital component is a significant pricing factor in asset return predictability. Third, we argue that the human capital component is the unaccounted asset pricing factor and equally the sixth-factor of the FF five-factor asset pricing model. The additional robustness test result confirms that the parameter estimation of the six-factor asset pricing model is robust to the alternative definitions of the human capital component. Implications: The empirical results and findings equally pose the more significant effects for the decision-making process of the rational investor, institutional managers, portfolio managers, and fund managers in formulating the better investment strategies, which can help in diversifying the aggregate risks.

scholarly journals The contribution of corporate social responsibility to financial performance: a factor model of Canadian stocks

2021 ◽  
Author(s):  
Mohammad Behroyan
Keyword(s):  
Corporate Social Responsibility ◽  
Asset Pricing ◽  
Social Responsibility ◽  
Factor Model ◽  
Explanatory Power ◽  
Pricing Model ◽  
Asset Pricing Model ◽  
Factor I ◽  
Fama And French ◽  
Corporate Social

This paper studies the effect of corporate social responsibility (CSR) on the returns of Canadian stocks. It employs the 3-factor asset-pricing model created by Fama and French (1993) and adds a new CSR factor (2x3 sorts) to examine if the explanatory power of the model is improved by the CSR factor. I, also, introduce an alternative method to create a 4-factor model (2x2x2 sorts). The results of my tests show the CSR factor does not improve the explanatory power of the Fama French models. Furthermore, replacing HML by CSR captures no more excess returns and I conclude that corporate social responsibility is not a priced factor in Canadian capital markets. In addition, the 3-factor model (based on Rm-Rf, SMB, HML) generates the exactly same results as Fama-French (1993 and 2015) models. Finally, I find that large firms, especially big size-low BE/ME companies, tend to be more “ethical”.

scholarly journals High-Dimensional Estimation, Basis Assets, and the Adaptive Multi-Factor Model

2020 ◽  
Vol 10 (04) ◽  
pp. 2050017
Author(s):  
Liao Zhu ◽  
Sumanta Basu ◽  
Robert A. Jarrow ◽  
Martin T. Wells
Keyword(s):  
Risk Factors ◽  
Asset Pricing ◽  
Factor Model ◽  
Financial Data ◽  
High Dimensional ◽  
Arbitrage Pricing Theory ◽  
Pricing Model ◽  
Arbitrage Pricing ◽  
Asset Pricing Model ◽  
Pricing Theory

The paper proposes a new algorithm for the high-dimensional financial data — the Groupwise Interpretable Basis Selection (GIBS) algorithm, to estimate a new Adaptive Multi-Factor (AMF) asset pricing model, implied by the recently developed Generalized Arbitrage Pricing Theory, which relaxes the convention that the number of risk-factors is small. We first obtain an adaptive collection of basis assets and then simultaneously test which basis assets correspond to which securities, using high-dimensional methods. The AMF model, along with the GIBS algorithm, is shown to have a significantly better fitting and prediction power than the Fama–French 5-factor model.

An Empirical Test of Capital Asset-pricing Model and Three-factor Model of Fama in Indian Stock Exchange

2018 ◽  
Vol 43 (4) ◽  
pp. 294-307
Author(s):  
Nenavath Sreenu
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Stock Exchange ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Expected Return ◽  
Asset Pricing Model ◽  
Three Factor

This article aims to test the capital asset-pricing model (CAPM) and three-factor model of Fama in Indian Stock Exchange, and it has focused on the recent growth of capital markets in India and the need of practitioners in these markets to determine a stable price for securities, and achieving expected returns has brought into consideration the theories predicting price securities Among different models the CAPM of Sharp. The study uses a sample of daily data and annual average for 54 companies listed on the National Stock Exchange, during the period from 2010 to 2016. The research article’s intention is to find whether the relationship between expected return and risk is linear, if beta is a complete measure of the risk and if a higher risk is compensated by a higher expected return. The results confirm that the intercept is statistically insignificant, upholding theory, for both individual assets and portfolios. The tests do not essentially provide validation against CAPM and Fama; however, other simulations can be built, more close to reality, by improving the model and offering an alternative which also takes into account the specific conditions of the Indian capital market and the global financial crisis consequences.

scholarly journals Empirical Test of Single Factor and Multi-Factor Asset Pricing Models: Evidence from Non Financial Firms on the Ghana Stock Exchange (GSE)

2015 ◽  
Vol 8 (1) ◽  
pp. 99
Author(s):  
Prince Acheampong ◽  
Sydney Kwesi Swanzy
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Stock Exchange ◽  
Explanatory Power ◽  
Pricing Model ◽  
Asset Pricing Model ◽  
Financial Firms ◽  
Portfolio Returns ◽  
Ghana Stock Exchange ◽  
Three Factor

<p>This paper examines the explanatory power of a uni-factor asset pricing model (CAPM) against a multi-factor model (The Fama-French three factor model) in explaining excess portfolio returns on non-financial firms on the Ghana Stock Exchange (GSE). Data covering the period January 2002 to December 2011 were used. A six Size- Book-to-Market (BTM) ratio portfolios were formed and used for the analysis. The paper revealed that, a uni-factor model like the (CAPM) could not predict satisfactorily, the excess portfolio returns on the Ghana Stock Exchange. By using the multi-factor asset pricing model, that is, the Fama-French Three Factor Model, excess portfolio returns were better explained. It is then conclusive enough that, the multi-factor asset pricing model introduced by Fama and French (1992) was a better asset pricing model to explain excess portfolio returns on the Ghana Stock Exchange than the Capital Assets Pricing Model (CAPM) and that there exist the firm size and BTM effects on the Ghanaian Stock market.</p>

scholarly journals Downside Risk-Based Six-Factor Capital Asset Pricing Model (CAPM): A New Paradigm in Asset Pricing

2020 ◽  
Vol 12 (17) ◽  
pp. 6756
Author(s):  
Usman Ayub ◽  
Samaila Kausar ◽  
Umara Noreen ◽  
Muhammad Zakaria ◽  
Imran Abbas Jadoon
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Five Factor Model ◽  
Downside Risk ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
Effective Manner

The importance of downside risk cannot be denied. In this study, we have replaced beta in the five-factor model of using downside beta and have added a momentum factor to suggest a new six-factor downside beta capital asset pricing model (CAPM). Two models are tested—a beta- and momentum-based six-factor model and a downside-beta- (proxy of downside risk) and momentum-based six-factor model. Beta and downside beta are highly correlated; therefore, portfolios are double-sorted to disentangle the correlation. Factor loadings, i.e., size, value, momentum, profitability, and investment, are constructed. The standard methodologies are applied. Data for sample stocks from different non-financial sectors listed in the Pakistan Stock Exchange (PSX) are taken from January 2000 to December 2018. The PSX-100 index and three-month T-bills are taken as proxies for market and risk-free returns. The study uses three subsamples for robustness—period of very high volatility, period of stability, and period of stability and growth with volatility. The results show that the value factor is redundant in both models. The momentum factor is rejected in the beta-based six-factor model only. The beta-based six-factor model shows very low R2 in periods of highly volatility. The R2 is high for the other periods. In contrast, the downside beta six-factor model captures the downside trend of the market in an effective manner with a relatively high R2. The risk–return relationship is stronger for the downside beta model. These reasons lead us to believe that, overall, the downside beta six-factor model is a better option for investors as compared to the beta-based six-factor model in the area of asset pricing models.

scholarly journals Analisis Komparasi Capital Asset Pricing Model dan Fama-French Three Factor Model untuk Penentuan Investasi Pada Saham Indeks IDX30 (Periode 2016 – 2018)

2020 ◽  
Vol 2 (2) ◽  
pp. 1
Author(s):  
Nadyah Brhigitta Dwiyuningsih Dotulong ◽  
Lanto Miriatin Amali ◽  
Selvi Selvi
Keyword(s):  
Asset Pricing ◽  
Annual Report ◽  
Factor Model ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
Three Factor

Penelitian ini bertujuan untuk mengetahui Metode Capital Asset Pricing Model dan Fama-French Three Factor Model untuk penentuan investasi pada saham Indeks IDX30 periode 2016 – 2018 serta untuk membandingkan antara dua model tersebut model manakah yang memiliki tingkat akurasi yang lebih tinggi untuk mempertimbangkan tingkat return dan risikonya. Metode yang digunakan dalam penelitian ini adalah deskriptif komparatif dengan pendekatan kuantitatif. Adapun data yang digunakan adalah data berupa laporan keuangan tahunan (annual report) Indeks IDX30 periode 2016 – 2018. Hasil penelitian ini menunjukkan bahwa Metode Capital Asset Pricing Model merupakan model yang lebih akurat dibandingkan Fama-French Three Factor Model. Selain terlihat sederhana, model Capital Asset Pricing Model ini juga lebih akurat dalam menentukan investasi sesuai dengan tingkat pengembalian yang diharapkan dan risiko yang bersedia ditanggung dan model ini dapat memberikan informasi secepat-cepatnya mengenai tingkat pengembalian dan risiko yang akan ditanggung investor. Kata-kata Kunci:Metode Capital Asset Pricing Model, Fama-French Three Factor Model, dan Indeks IDX30. 

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