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http://hdl.handle.net/10362/151313
Título: | Essays on dynamic and equilibrium asset pricing |
Autor: | Maio, Paulo Luís Fraga Martins |
Orientador: | Clara, Pedro Santa |
Palavras-chave: | Asset pricing Asset pricing models Conditional pricing models Consumption-based models Equity premia ICAPM Linear multifactor models Predictability of returns Predictability of returns Time-varying risk aversion Bond risk premia Stock and bond returns FED model Earnings yield |
Data de Defesa: | 2006 |
Resumo: | This doctoral dissertation is centralized on the topic of asset pricing. The first two chapters build on the Intertemporal Capital Asset Pricing Model (ICAPM), whereas the last chapter is related with the literature of predictability of expected asset returns. In the first chapter, a derivation of the ICAPM in a very general framework and previous theoretical work, argue for the relative risk aversion (RRA) coefficient to be both time -varying and countercyclical. The variables that represent proxies for the cyclical component of RRA are the market dividend yield, default spread, smoothed earnings yield and the cyclical components of industrial production and earnings, all being highly correlated with the business cycle. In addition, the value spread - a proxy for the relative valuation of value stocks versus growth stocks - is included as a determinant of risk aversion. The results show that risk aversion is countercyclical, and the ICAPM with time-varying RRA performs better than the Bad beta good beta model (BBGB) from Campbell and Vuolteenaho (2004). The estimates of the average RRA coefficient seem reasonable and plausible, and the model is able to capture a significant decline in risk-aversion in the 90's, in line with the mounting evidence from academics and practioneers. When compared against alternative factor models - CAPM and Fama -French (1993) 3 factor model - the scaled ICAPM performs much better than the CAPM, and compares reasonably well against the Fama -French model. A crucial result relies on the fact that the scaled ICAPM models do a good job in pricing both the "extreme" small-growth portfolio and all the book-to-market quintiles, which is mainly due to the presence of the factor related with time-varying risk -aversion. Overall, the results of this chapter offer a fundamental explanation - time-varying risk aversion - for the value premium. Preliminary results suggest that the ad-doc HML and momentum (UMD) factors, at least partially, measure the same types of risks as the ICAPM with time-varying risk aversion. In the second chapter, I derive an ICAPM model based on an augmented definition of market wealth by incorporating bonds, and by decomposing excess stock return news into bond premia news and the remainder, news in the "true" equity premia. This model which represents an extension of the Bad Beta Good Beta (BBGB) from Campbell and Vuolteenaho (2004), has three factors: Cash flow news, equity premia news and bond premia news. The betas associated with bond premia news are relatively stable across individual assets, in opposition to the equity premia betas. The risk prices estimates of cash flow news (bad beta) are higher relative to equity premia news (good beta) and this one has higher risk prices than bond premia news (excellent beta). Several versions of the model outperform the CAPM and the BBGB models in pricing the size/book-to-market portfolios. An augmented model which incorporates scaled factors related with time-varying risk aversion, shows that risk aversion is negatively correlated with bond premia news. This model has very low pricing errors and is also able to price the value premium, in addition to other ICAPM specifications. Preliminary results show that the momentum factor (UMD) factor is mostly insignificant in the presence of the ICAPM factors, and this suggests that at least partially the ICAPM with time-varying bond premia and risk aversion can take into account momentum. The earnings yield and long-term bond yields have been widely used to predict asset returns. In the third chapter, I focus on the predictive role of the stock-bond "yield gap" - the difference between the earnings yield and the 10 year Treasury bond yield - also know as the FED model - and which can be interpreted as a long term yield spread of stocks relative to bonds. Conditional on other forecasting variables, the yield gap forecasts positive excess stock returns, both at short and long forecasting horizons, although the forecasting power is greater at the near horizons. On the other hand, the yield gap forecasts negative excess returns for bonds, at both short and long horizons. A VAR variance decomposition for stock market returns, shows that shocks in the yield gap are highly positively correlated with innovations in both future discount -rate and cash flow news, confirming that the spread conveys information about future earnings and returns. An investment strategy based on the forecasting ability of the Yield gap produces higher Sharpe ratios than passive strategies in both the market index and long-term bond. In the context of an equilibrium multifactor ICAPM, the yield gap has some explanatory power over the cross section of stock returns. |
URI: | http://hdl.handle.net/10362/151313 |
Designação: | Gestão de Empresas |
Aparece nas colecções: | NSBE: Nova SBE - PhD Thesis |
Ficheiros deste registo:
Ficheiro | Descrição | Tamanho | Formato | |
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Maio_2006.pdf | 43,71 MB | Adobe PDF | Ver/Abrir Acesso Restrito. Solicitar cópia ao autor! |
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