A unified beta pricing theory

Connor, Gregory

doi:10.1016/0022-0531(84)90159-5

Cited by 281 publications

(142 citation statements)

References 12 publications

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“…7 For a partial list of works related to factor risk models, see (Acharya and Pedersen, 2005), (Ang et al, 2006), (Anson, 2013/14), (Asness, 1995), (Asness and Stevens, 1995), (Asness et al, 2001), (Bai, 2003), (Bai and Li, 2012), (Bai and Ng, 2002), (Bansal and Viswanathan, 1993), (Banz, 1981), (Basu, 1977), (Black, 1972), , (Blume and Friend, 1973), (Brandt et al, 2010), (Briner and Connor, 2008), (Burmeister and Wall, 1986), (Campbell, 1987), (Campbell et al, 2001), (Campbell and Shiller, 1988), (Carhart, 1997), (Chamberlain and Rothschild, 1983), (Chan et al, 1985), (Chen et al, 1986(Chen et al, , 1990, (Chicheportiche and Bouchaud, 2015), (Cochrane, 2001), (Connor, 1984(Connor, , 1995, (Connor and Korajczyk, 1988, 1989, (Daniel and Titman, 1997), (DeBondt and Thaler, 1985), (Dhrymes et al, 1984), (Fama and French, 1992, (Fama and McBeth, 1973), Harvey, 1991, 1999), (Forni et al, 2000(Forni et al, , 2005, (Forni and Lippi 2001), (Goyal et al, 2008), …”

Section: Introductionmentioning

confidence: 99%

Multifactor Risk Models and Heterotic CAPM

Kakushadze¹,

2016

SSRN Journal

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ZK: To my children Mirabelle and Maximilien Kakushadze WY: To my parents Albert and Ribena Yu AbstractWe give a complete algorithm and source code for constructing general multifactor risk models (for equities) via any combination of style factors, principal components (betas) and/or industry factors. For short horizons we employ the Russian-doll risk model construction to obtain a nonsingular factor covariance matrix. This generalizes the heterotic risk model construction to include arbitrary non-industry risk factors as well as industry risk factors with generic "weights". The aim of sharing our proprietary know-how with the investment community is to encourage organic risk model building. The presentation is intended to be essentially self-contained and pedagogical. So, stop wasting money and complaining, start building risk models and enjoy! 4

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Section: Introductionmentioning

confidence: 99%

Multifactor Risk Models and Heterotic CAPM

Kakushadze¹,

2016

SSRN Journal

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“…For instance, the classical capital asset pricing model (CAPM) predicts portfolio separation (that all agents should hold the market portfolio), while Merton's (1973) continuous-time model and Connor's (1984) equilibrium version of APT both predict k-fund separation.…”

Section: Introductionmentioning

confidence: 99%

Prices and Portfolio Choices in Financial Markets: Theory, Econometrics, Experiments

2007

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Many tests of asset-pricing models address only the pricing predictions, but these pricing predictions rest on portfolio choice predictions that seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices based on unobserved heterogeneity. This approach yields the standard pricing conclusions of classical models but is consistent with very different portfolio choices. Novel econometric tests link the price and portfolio predictions and take into account the general equilibrium effects of sample-size bias. This paper works through the approach in detail for the case of the classical capital asset pricing model (CAPM), producing a model called CAPM + . When these econometric tests are applied to data generated by large-scale laboratory asset markets that reveal both prices and portfolio choices, CAPM + is not rejected.

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“…is a null function of i: For this theorem we employ a condition on 5 We shall follow the more traditional representations (7) and (8) …”

Section: The Systematic Risk Exposuresmentioning

confidence: 99%

“…First consider models in which both v i and y i are absent. For example, Ross (1976), Connor(1984), discuss the diversi¯cation of the idiosyncratic components u 0 a i by essentially setting out conditions under which each u 0 a i is zero for each i: The factors then reduce to S with no necessity of invoking a law of large numbers. The associated conditions on preferences and asset returns are however quite strong.…”

Section: Asset Pricing Examplesmentioning

confidence: 99%

Incomplete Diversification and Asset Pricing

Madan

Milne

Elliott

2002

Advances in Finance and Stochastics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractInvestors in equilibrium are modeled as facing investor speci¯c risks across the space of assets. Personalized asset pricing models re°ect these risks. Averaging across the pool of investors we obtain a market asset pricing model that re°ects market risk exposures. It is observed on invoking a law of large numbers applied to an in¯nite population of investors that many personally relevant risk considerations can be eliminated from the market asset pricing model. Examples illustrating the e®ects of undiversi¯ed labor income and taste speci¯c price indices are provided. Suggestions for future work on asset pricing include a need to focus on identifying and explaining investor speci¯c risk exposures.

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A unified beta pricing theory

Cited by 281 publications

References 12 publications

Multifactor Risk Models and Heterotic CAPM

Multifactor Risk Models and Heterotic CAPM

Prices and Portfolio Choices in Financial Markets: Theory, Econometrics, Experiments

Incomplete Diversification and Asset Pricing

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