Search results
1 – 10 of 373Santhakumar Shijin, Arun Kumar Gopalaswamy and Debashis Acharya
The purpose of this paper is to test a discrete time asset pricing model where a non‐marketable asset (human capital), along with other factors predicting stock returns, explain…
Abstract
Purpose
The purpose of this paper is to test a discrete time asset pricing model where a non‐marketable asset (human capital), along with other factors predicting stock returns, explain risk return relationship. The paper will add to the literature on risk return relationship with human capital by investigating the hypothesis that human capital is a significant factor affecting stock prices.
Design/methodology/approach
The dynamic inter‐linkages of factors representing financial and human components of wealth in predicting stock returns is tested in the Indian market for the period of 1996:04 to 2005:06. The procedures employed include Granger causality tests, impulse response functions and seemingly unrelated regression estimates.
Findings
Empirical findings validate the model that including human capital as a proxy for aggregate wealth in the economy can better predict stock prices than the standard empirical capital asset pricing model. There is a Granger cause relationship between security prices and labor income and it is further concluded that labor and dividend are significant factors affecting security prices.
Originality/value
This is one of the first papers to study the human capital aspect in predicting stock returns in the Indian market. In addition, the paper provides important insights into the causal relationship of human capital and market return in explaining the risk return relationship.
Details
Keywords
GEORGI GEORGEV, JAY JUNG, HOSSEIN B. KAZEMI and MAHNAZ MAHDAVI
This paper shows that for a large class of single and multi‐factor term structure models, including the affine class, the market price of risk is directly related to the…
Abstract
This paper shows that for a large class of single and multi‐factor term structure models, including the affine class, the market price of risk is directly related to the parameters of the stochastic processes of the underlying factors of the economy. It is shown that the market price of risk is proportional to the limit of the volatility of zero coupon bond returns. This means that the market price of risk is not entirely arbitrary. Not only it must be consistent with no arbitrage conditions, also it must be consistent with the parameters of stochastic processes of the factors that describe the economy. If the market price of risk is not correctly specified, then it could lead to profit opportunities of the type discussed in Backus et al (1996). Another consequence of our result is that in empirical tests of interest rate processes, the market price of risk should not be specified exogenously since its value is a function of the parameters of the model. We extend our result to forward processes. The market price of risk is shown to be a function of the volatility of the forward rate processes.
Regardless of extent of substitutability and complementarity in a conventional general equilibrium model with three factors and two sectors, there is no possibility that factor…
Abstract
Regardless of extent of substitutability and complementarity in a conventional general equilibrium model with three factors and two sectors, there is no possibility that factor rewards of the extreme factors will reverse their ranking in response to a change in relative prices.
Details
Keywords
In this chapter I characterize the relationship between macroeconomic variables and the terms structure of interest rates using the recent macro-finance approach adapted to the…
Abstract
In this chapter I characterize the relationship between macroeconomic variables and the terms structure of interest rates using the recent macro-finance approach adapted to the case of an emerging economy and applying it to Brazil. I find that macro variables help to explain the dynamics of the yield curve in emerging markets, specially in periods of high volatility. Moreover, the notion of great external vulnerability of emerging economies is confirmed by the strong role of the nominal exchange rate change, which explains up to 37% of the variation in yields in Brazil. However, the model does a poor job in forecasting yields during the financial crisis of 2008. This fact seems to be related to the strong fall in international commodity and industrial goods prices (in dollar terms), which limited the passthrough from the strong depreciation of the exchange rate to inflation.
Details
Keywords
Leiming Geng, Ruihua Zhang and Weihua Liu
It is an indispensable part of airworthiness certification to evaluate the fuel tank flammability exposure time for transport aircraft. There are many factors and complex coupling…
Abstract
Purpose
It is an indispensable part of airworthiness certification to evaluate the fuel tank flammability exposure time for transport aircraft. There are many factors and complex coupling relationships affecting the fuel tank flammability exposure time. The current work not only lacks a comprehensive analysis of these factors but also lacks the significance of each factor, the interaction relationship and the prediction method of flammability exposure time. The lack of research in these aspects seriously restricts the smooth development of the airworthiness forensics work of domestic large aircraft. This paper aims to clarify the internal relationship between user input parameters and predict the flammability exposure time of fuel tanks for transport aircraft.
Design/methodology/approach
Based on the requirements of airworthiness certification for large aircraft, an in-depth analysis of the Monte Carlo flammability evaluation source procedures specified in China Civil Aviation Regulation/FAR25 airworthiness regulations was made, the internal relationship between factors affecting the fuel tank flammability exposure time was clarified and the significant effects and interactions of input parameters in the Monte Carlo evaluation model were studied using the response surface method. And the BP artificial neural network training samples with high significance factors were used to establish the prediction model of flammability exposure time.
Findings
The input parameters in the Monte Carlo program directly or indirectly affect the fuel tank flammability exposure time by means of the influence on the flammability limit or fuel temperature. Among the factors affecting flammability exposure time, the cruising Mach number, balance temperature difference and maximum range are the most significant, and they are all positively correlated with flammability exposure time. Although there are interactions among all factors, the degree of influence on flammability exposure time is not the same. The interaction between maximum range and equilibrium temperature difference is more significant than other factors. The prediction model of flammability exposure time based on multifactor interaction and BP neural network has good accuracy and can be applied to the prediction of fuel tank flammability exposure time.
Originality/value
The flammability exposure time prediction model was established based on multifactor interaction and BP neural network. The limited test results were combined with intelligent algorithm to achieve rapid prediction, which saved the test cost and time.
Details
Keywords
Asgar Ali and Hajam Abid Bashir
This study aims to provide a comprehensive overview of asset pricing research and identifies the general research trends in the area. The study also aims to provide future…
Abstract
Purpose
This study aims to provide a comprehensive overview of asset pricing research and identifies the general research trends in the area. The study also aims to provide future direction to the researchers in the area of asset pricing.
Design/methodology/approach
The study uses bibliometric analysis techniques to achieve the stated purpose. The study covers 3,007 articles published in the top 50 finance and economics journals, accessed from the Scopus database for a period of 47 years (1973–2020). After initial searching for “asset pricing” as the main keyword in “title, abstract, keywords”, the database yields 6,583 articles. This number further reduces to 3,007 articles when the search is restricted to research and review articles published in the top 50 peer-reviewed journals.
Findings
The tabular and pictorial representation obtained from the analysis exhibit that asset pricing is an extensively researched area; however, a sudden rise in the number of publications (242) observed for 2019 demonstrates a growing interest amongst researchers. Further, affiliation statistics indicate that the volume of research is mainly concentrated in the USA and other developed nations; hence it opens vistas for the exploration of risk-return dynamics in the context of emerging markets.
Originality/value
The work presents an exhaustive and comprehensive review along with potential research implications. The present study reconciles various contradictory views of the prior studies under asset pricing such as risk-return trade-off, low-risk anomaly and provides the researchers with potential research gaps.
Details
Keywords
Philip Gharghori, Howard Chan and Robert Faff
Daniel and Titman (1997) contend that the Fama‐French three‐factor model’s ability to explain cross‐sectional variation in expected returns is a result of characteristics that…
Abstract
Daniel and Titman (1997) contend that the Fama‐French three‐factor model’s ability to explain cross‐sectional variation in expected returns is a result of characteristics that firms have in common rather than any risk‐based explanation. The primary aim of the current paper is to provide out‐of‐sample tests of the characteristics versus risk factor argument. The main focus of our tests is to examine the intercept terms in Fama‐French regressions, wherein test portfolios are formed by a three‐way sorting procedure on book‐to‐market, size and factor loadings. Our main test focuses on ‘characteristic‐balanced’ portfolio returns of high minus low factor loading portfolios, for different size and book‐to‐market groups. The Fama‐French model predicts that these regression intercepts should be zero while the characteristics model predicts that they should be negative. Generally, despite the short sample period employed, our findings support a risk‐factor interpretation as opposed to a characteristics interpretation. This is particularly so for the HML loading‐based test portfolios. More specifically, we find that: the majority of test portfolios tend to reveal higher returns for higher loadings (while controlling for book‐to‐market and size characteristics); the majority of the Fama‐French regression intercepts are statistically insignificant; for the characteristic‐balanced portfolios, very few of the Fama‐French regression intercepts are significant.
Details
Keywords
Saumya Ranjan Dash and Jitendra Mahakud
The purpose of this paper is to investigate the firm-specific anomaly effect and to identify market anomalies that account for the cross-sectional regularity in the Indian stock…
Abstract
Purpose
The purpose of this paper is to investigate the firm-specific anomaly effect and to identify market anomalies that account for the cross-sectional regularity in the Indian stock market. The paper also examines the cross-sectional return predictability of market anomalies after making the firm-specific raw return risk adjusted with respect to the systematic risk factors in the unconditional and conditional multifactor specifications.
Design/methodology/approach
The paper employs first step time series regression approach to drive the risk-adjusted return of individual firms. For examining the predictability of firm characteristics on the risk-adjusted return, the panel data estimation technique has been used.
Findings
There is a weak anomaly effect in the Indian stock market. The choice of a five-factor model (FFM) in its unconditional and conditional specifications is able to capture the book-to-market equity, liquidity and medium-term momentum effect. The size, market leverage and short-run momentum effect are found to be persistent in the Indian stock market even with the alternative conditional specifications of the FFM. The results also suggest that it is naï argue for disappearing size effect in the cross-sectional regularity.
Research limitations/implications
Constrained upon the data availability, certain market anomalies and conditioning variables cannot be included in the analysis.
Practical implications
Considering the practitioners' prospective, the results indicate that the profitable investment strategy with respect to the small size effect is still persistent and warrants close-ended mutual fund investment portfolio strategy for enhancing the long-term profitability. The short-run momentum effect can generate potential profits given a short-term investment horizon.
Originality/value
This paper provides the first-ever empirical evidence from an emerging stock market towards the use of alternative conditional multifactor models for the complete explanation of market anomalies. In an attempt to analyze the anomaly effect in the Indian stock market, this paper provides further evidence towards the long-short hedge portfolio return variations in terms of a wide set of market anomalies that have been documented in prior literature.
Details
Keywords
Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some…
Abstract
Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some legal aspects concerning MNEs, cyberspace and e‐commerce as the means of expression of the digital economy. The whole effort of the author is focused on the examination of various aspects of MNEs and their impact upon globalisation and vice versa and how and if we are moving towards a global digital economy.
Details
Keywords
Terry Grissom, Lay Cheng Lim and James DeLisle
The purpose of this paper is to investigate the strategy that a turnaround in the USA will portend a turnaround in the UK's economy and property market. For this strategy to…
Abstract
Purpose
The purpose of this paper is to investigate the strategy that a turnaround in the USA will portend a turnaround in the UK's economy and property market. For this strategy to operate, it is assumed that the capital and property markets in and between the two nations are highly integrated with endogenous pricing functions.
Design/methodology/approach
Given the endogenous assumptions of the conjectured research statement, tests of integration (or segmentation) between two capital and property markets are conducted. Correlation, tracking error analysis, and a multiple systematic risk factor model are used to test the pricing relationships. The methodological form employs variant macroeconomic variable pricing models (MVM) of alternative combinations of systematic affects operating across and between the national markets.
Findings
Pricing integration is noted between the UK and US capital markets, while the property markets are economically and statistically segmented. Opportunities for arbitrage based on different prices/returns for equivalent risk exposures are statistically observed between the UK and USA. The effect is that systematic pricing between the two markets cannot be addressed solely by diversification options. This infers a potential for arbitrage (statistically, strategically or in practice) is possible, given that systematic risk exposures between the two markets are not equivalently priced across cyclical phases. In this context it is inferred that the probable measure of pricing differences across the two markets is more than a cyclical lag effect.
Originality/value
The paper delineates the degrees of integration/segmentation in the UK and US property and capital markets as a function of systematic risks in changing economic conditions. These differences support the existence of statistical arbitrage and the specification of investment behaviour as a function of differencing pricing expectations. These findings can assist in the formulation of investment and hedging strategies to assist in managing international portfolios subject to cyclical market exposures. This paper contributes to an understanding of and foundation for testing the nature and impact of cycles on property investment performance as a function of pricing changes.
Details