scholarly journals The Private Income Tax Shock Premium

2019 ◽  
Author(s):  
Zornitsa Todorova
Keyword(s):  
Asset Pricing ◽  
Income Tax ◽  
Consumer Demand ◽  
Factor Model ◽  
Wealth Effect ◽  
Investment Strategy ◽  
Policy Changes ◽  
Cross Sectional ◽  
Tax Shocks ◽  
Elastic Demands

This paper investigates the asset pricing implications of tax policy changes. News about tax cuts decreases future tax revenues and increases future consumer demand and output. Using cross-sectional variation in industry exposure to structurally identified tax news, I develop a factor mimicking private income tax shocks. I construct an investment strategy, which generates annualized risk-adjusted returns of 5.16 % over the Fama-French 3-factor model. I rationalize the finding by arguing that firms with more elastic demands bear higher consumption risk, which works through a wealth effect.

The Bias in Two-Pass Regression Tests of Asset-Pricing Models in Presence of Idiosyncratic Errors with Cross-Sectional Dependence

2019 ◽  
Vol 22 (02) ◽  
pp. 1950012
Author(s):  
Thomas Gramespacher ◽  
Armin Bänziger
Keyword(s):  
Asset Pricing ◽  
Risk Premium ◽  
Measurement Errors ◽  
Factor Model ◽  
Pricing Models ◽  
Time Series Regression ◽  
Cross Sectional ◽  
Asset Pricing Models ◽  
Slope Estimator ◽  
Regression Tests

In two-pass regression-tests of asset-pricing models, cross-sectional correlations in the errors of the first-pass time-series regression lead to correlated measurement errors in the betas used as explanatory variables in the second-pass cross-sectional regression. The slope estimator of the second-pass regression is an estimate for the factor risk-premium and its significance is decisive for the validity of the pricing model. While it is well known that the slope estimator is downward biased in presence of uncorrelated measurement errors, we show in this paper that the correlations seen in empirical return data substantially suppress this bias. For the case of a single-factor model, we calculate the bias of the OLS slope estimator in the presence of correlated measurement errors with a first-order Taylor-approximation in the size of the errors. We show that the bias increases with the size of the errors, but decreases the more the errors are correlated. We illustrate and validate our result using a simulation approach based on empirical data commonly used in asset-pricing tests.

scholarly journals MULTIFACTOR ASSET PRICING ANALYSIS OF THE BALTIC STOCK MARKET

Ekonomika ◽  
2010 ◽  
Vol 89 (4) ◽  
pp. 85-95 ◽  
Author(s):  
Raimonds Lieksnis
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Factor Model ◽  
Stock Market Index ◽  
Cross Sectional ◽  
Economic Significance ◽  
Market Index ◽  
Fama And French ◽  
The Baltic ◽  
Three Factor

This study investigates whether the Fama–French three-factor asset pricing model is applicable for explaining cross-sectional returns of stocks listed in the Baltic stock exchanges. Findings confirm the validity and economic significance of the three-factor model for the Baltic stock market: only investors who chose to invest in value stocks during the reference period achieved positive returns by matching or beating the returns of the stock market index. The monthly returns of 8 Latvian, 13 Estonian and 27 Lithuanian company stocks are analyzed for the time period from June 2002 till February 2010 by the methodology presented in Davis, Fama, and French (2000). Cross-sectional multivariate regression is calculated with stock portfolios representing the book-to-market and capitalization of companies as independent variables along with the stock market index. The study concludes that these three factors in the three-factor model are statistically significant, but, in line with earlier studies, regression intercepts are significantly different from zero and the model is not statistically confirmed.p>

Macroeconomic Risks and Asset Pricing: Evidence from a Dynamic Stochastic General Equilibrium Model

2019 ◽  
Vol 65 (8) ◽  
pp. 3585-3604 ◽  
Author(s):  
Erica X. N. Li ◽  
Haitao Li ◽  
Shujing Wang ◽  
Cindy Yu
Keyword(s):  
Asset Pricing ◽  
General Equilibrium ◽  
Factor Model ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Model ◽  
Cross Sectional ◽  
Dynamic Stochastic ◽  
Monetary Policy Shock ◽  
Macroeconomic Risks

We study the relation between macroeconomic fundamentals and asset pricing through the lens of a dynamic stochastic general equilibrium (DSGE) model. We provide full-information Bayesian estimation of the DSGE model using macroeconomic variables and extract the time series of four latent fundamental shocks of the model: neutral technology shock, investment-specific technological shock, monetary policy shock, and risk shock. Asset pricing tests show that our model-implied four-factor model can explain a number of prominent cross-sectional return spreads: size, book-to-market, investment, earnings, and long-term reversal. The investment-specific technological shock and risk shock play the most important role in explaining those return spreads. This paper was accepted by Neng Wang, finance.

Who is King in Factor Zoo? Case of the Chinese Stock Market

2020 ◽  
Vol 14 (2) ◽  
pp. 77-102
Author(s):  
Simon M. S. So
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Investment Strategy ◽  
Capital Asset Pricing ◽  
Chinese Stock Market ◽  
Fama And French ◽  
Three Factor

This paper aimed to evaluate and compare individual performances and contributions of seven well-known factors, selected from four widely cited asset pricing models: (1) the capital asset pricing model of Sharpe (1964), (2) the three-factor model of Fama and French (1993) the augmented four-factor model of Carhart (1997), (3) the five-factor model of Fama and French (2015), and (4) the illiquidity model of Amihud, et al. (2015) in capturing the time-series variation of stock returns and absorbing the 12 prominent anomalies. The anomalies were constructed by forming long-short portfolios, and regressions were run to examine their monthly returns from 2000 to 2019. We found that there is no definite and absolute “king” in the factor zoo in the Chinese stock market, and size is the relative “king” that can absorb the maximum number of anomalies. Evidence also indicates that the three-factor model of Fama and French may still play an important role in pricing assets in the Chinese stock market. The results can provide investors with a reliable risk factor and help investors form an effective investment strategy. This paper contributes to asset pricing literature in the Chinese market.G1

scholarly journals Creative Destruction and Asset Prices

2016 ◽  
Vol 51 (6) ◽  
pp. 1739-1768 ◽  
Author(s):  
Joachim Grammig ◽  
Stephan Jank
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Creative Destruction ◽  
Expected Returns ◽  
Expected Return ◽  
Cross Sectional ◽  
Large Growth ◽  
Estimated Risk ◽  
Growth Stocks ◽  
Invention Activity

We relate Schumpeter’s notion of creative destruction to asset pricing, thereby offering a novel explanation of size and value premia. We argue that small-value firms must offer higher expected returns to compensate for the risk posed by serendipitous invention activity, whereas large-growth stocks provide protection against creative destruction and receive expected return discounts. A 2-factor model that accounts for creative-destruction risk effectively explains the cross-sectional return variation of size- and book-to-market-sorted portfolios. The estimated risk compensations associated with creative destruction are substantial and statistically significant, indicating their relevance for asset pricing.

scholarly journals Uji Empiris Pengaruh Idiosyncratic Volatility Terhadap Expected Return: Aplikasi Fama-French Five Factor Model

2019 ◽  
Vol 9 (2) ◽  
pp. 268
Author(s):  
Muhammad Pudjianto ◽  
Buddi Wibowo
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Direct Method ◽  
Five Factor Model ◽  
Idiosyncratic Volatility ◽  
Expected Return ◽  
Cross Sectional ◽  
Ex Ante

Penelitian ini bertujuan untuk melakukan pengujian pengaruh antara idiosyncratic volatility dengan expected return. Idiosyncratic volatility dihitung dengan pendekatan langsung (direct method), yaitu standar deviasi dari residual yang dihasilkan model asset pricing Fama-French Five Factor. Penelitian ini menguji idiosyncratic volatility secara contemporaneous dan ex-ante. One-month lagged idiosyncratic volatility digunakan sebagai proksi dari expected idiosyncratic volatility. Metode yang digunakan dalam menguji model penelitian adalah Fama-Macbeth Cross-Sectional Regression. Hasil penelitian menunjukkan bahwa terdapat pengaruh yang positif dan signifikan antara realized idiosyncratic volatility dengan expected return pada waktu yang bersamaan (contemporaneous). Sedangkan secara ex-ante terdapat pengaruh yang negatif dan signifikan antara one-month lagged idiosyncratic volatility dengan expected return.

Freedom Indices and Capital Asset Pricing Model: Some Malaysian Evidence

2020 ◽  
Vol 1 (1) ◽  
pp. 1-21
Author(s):  
Ying Tay Lee ◽  
Devinaga Rasiah ◽  
Ming Ming Lai
Keyword(s):  
Human Rights ◽  
Asset Pricing ◽  
Stock Returns ◽  
Firm Size ◽  
Explanatory Power ◽  
Least Square ◽  
Press Freedom ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Cross Sectional

Human rights and fundamental freedoms such as economic, political, and press freedoms vary widely from country to country. It creates opportunity and risk in investment decisions. Thus, this study is carried out to examine if the explanatory power of the model for capital asset pricing could be improved when these human rights movement indices are included in the model. The sample for this study comprises of 495 stocks listed in Bursa Malaysia, covering the sampling period from 2003 to 2013. The model applied in this study employed the pooled ordinary least square regression estimation. In addition, the robustness of the model is tested by using firm size as a controlled variable. The findings show that market beta as well as the economic and press freedom indices could explain the cross-sectional stock returns of the Malaysian stock market. By controlling the firm size, it adds marginally to the explanation of the extended CAP model which incorporated economic, political, and press freedom indices.

State earned income tax credits and suicidal behavior: A repeated cross-sectional study

2021 ◽  
pp. 106403
Author(s):  
Erin R. Morgan ◽  
Christopher R. DeCou ◽  
Heather D. Hill ◽  
Stephen J. Mooney ◽  
Frederick P. Rivara ◽  
...  
Keyword(s):  
Suicidal Behavior ◽  
Income Tax ◽  
Cross Sectional Study ◽  
Tax Credits ◽  
Sectional Study ◽  
Cross Sectional ◽  
Earned Income

Information risk, stock returns, and asset pricing: Evidence from China

2017 ◽  
Vol 30 (4) ◽  
pp. 379-394 ◽  
Author(s):  
Raheel Safdar ◽  
Chen Yan
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Empirical Literature ◽  
Firm Level ◽  
Cross Sectional ◽  
Market Pricing ◽  
Content Type ◽  
Information Risk ◽  
Accruals Quality ◽  
Three Factor

Purpose This study aims to investigate information risk in relation to stock returns of a firm and whether information risk is priced in China. Design/methodology/approach The authors used accruals quality (AQ) as their measure of information risk and performed Fama-Macbeth regressions to investigate association of AQ with future realized stock returns. Moreover, two-stage cross-sectional regression analysis was performed, both at firm level and at portfolio level, to test if the AQ factor is priced in China in addition to existing factors in the Fama French three-factor model. Findings The authors found poor AQ being associated with higher future realized stock returns. Moreover, they found evidence of market pricing of AQ in addition to existing factors in the Fama French three-factor model. Further, subsample analysis revealed that investors value AQ more in non-state owned enterprises than in state owned enterprises. Research limitations/implications The study sample comprises A-shares only and the generalization of the findings is limited by the peculiar institutional and economic setup in China. Originality/value This study contributes to market-based accounting literature by providing further insight into how and if investors value information risk, and it seeks to fill gap in empirical literature by providing evidence from the Chinese capital market.

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