Tests of international CAPM with time‐varying covariances

Engel, Charles; Rodrigues, Anthony P.

doi:10.1002/jae.3950040203

Cited by 117 publications

(29 citation statements)

References 47 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…There are several competing points of view. Some argue that such variables are fundamental val-2 See, for example, Hansen and Singleton (1983) followed by Wheatley (1988), Bollerslev et al (1988) followed by Engel and Rodrigues (1989), Ferson (1990) followed by Brown and Otsuki (1990b); Harvey (1989Harvey ( , 1991a and Harvey (1991, 1993). Of course, there are exceptions to the general pattern, in which international studies develop ®rst approaches used later in a domestic setting.…”

Section: Introductionmentioning

confidence: 99%

Fundamental Determinants of National Equity Market Returns: A Perspective on Conditional Asset Pricing

Ferson

Harvey

1996

SSRN Journal

View full text Add to dashboard Cite

This paper provides a global asset pricing perspective on the debate over the relation between predetermined attributes of common stocks, such as ratios of price-to-bookvalue, cash-¯ow, earnings, and other variables to the future returns. Some argue that such variables may be used to ®nd securities that are systematically undervalued by the market, while others argue that the measures are proxies for exposure to underlying economic risk factors. It is not possible to distinguish between these views without explicitly modelling the relation between such attributes and risk factors. We present an empirical framework for attacking the problem at a global level, assuming integrated markets. Our perspective pulls together the traditional academic and practitioner viewpoints on lagged attributes. We present new evidence on the relative importance of risk and mispricing e ects, using monthly data for 21 national equity markets. We ®nd that the cross-sectional explanatory power of the lagged attributes is related to both risk and mispricing in the two-factor model, but the risk e ects explain more of the variance than mispricing. Ó 1998 Elsevier Science B.V. All rights reserved. 0378-4266/97/$17.00 Ó 1997 Elsevier Science B.V. All rights reserved. PII S 0 3 7 8 -4 2 6 6 ( 9 7 ) 0 0 0 4 4 -7

show abstract

Section: Introductionmentioning

confidence: 99%

Fundamental Determinants of National Equity Market Returns: A Perspective on Conditional Asset Pricing

Ferson

Harvey

1996

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…For example, Bollerslev, Engle and Wooldridge [1988] estimated the GARCH model, but their results were inconclusive. Engel and Rodrigues [1989] proposed an international asset pricing model based on CAPM with time-varying covariances. Ng [1991] examined the CAPM allowing for the conditional expected excess return and the level of risk to change over time.…”

Section: Literature Overviewmentioning

confidence: 99%

Should We Rely on Forecasts of Prices or Returns? The Short Term Approach

Majerowska¹

2017

Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu

View full text Add to dashboard Cite

Summary:Investors make their decisions on the basis of the information coming from the market. The main features of assets are prices and investment risk. The rates of return are calculated based on the prices. For modelling the returns, capital asset pricing models can be applied; for the prices, methods of technical analysis could be taken into account. The purpose of this paper is to evaluate both approaches. First -financial modelling of the assets' returns, and the second -the analysis of the assets' prices. In order to verify the effectiveness of the forecasting processes, forecasts and ex-post type forecasting errors were calculated. The empirical analysis is based on the stock prices of ten food companies traded on the Warsaw Stock Exchange. The traditional CAPM and the extension of the CAPM by the GARCH(1,1) process are in use. As the technical analysis tool for price modelling, three period moving averages are calculated. The obtained results allow indicating the superiority of modelling the returns, in terms of short-term forecasting. Unfortunately, the hypothesis about the advantage of the application of GARCH for modelling, and then for forecasting, must be rejected.Keywords: modelling returns, CAPM with GARCH, moving average. Streszczenie: Inwestorzy podejmują decyzje na podstawie informacji pochodzących z rynku. Głównymi cechami aktywów, branymi przez nich pod uwagę, są ceny i ryzyko inwestycji. W oparciu o ceny obliczane są stopy zwrotu. Przyszłe ruchy cen można przewidywać z pomocą narzędzi analizy technicznej. Do modelowania stóp zwrotu wykorzystuje się głów-nie modele wyceny aktywów kapitałowych. Celem niniejszej pracy jest ocena zastosowania obu podejść: modelowania ekonometrycznego stóp zwrotu aktywów i analizy cen aktywów oraz sprawdzenie skuteczności obu podejść do prognozowania. Analiza empiryczna obejmuje dzienne notowania akcji dziesięciu spółek sektora spożywczego, notownych na Giełdzie Papierów Wartościowych w Warszawie. Dokonano porównania tradycyjnego podejścia do wyceny aktywów za pomocą modelu CAPM z modelem uwzględniającym zmienność wariancji GARCH(1,1). Narzędziem analizy technicznej do modelowania cen jest trzyokresowa średnia ruchoma. Wyniki wskazują na przewagę modelowania stóp zwrotu w kontekście pro- 188Ewa Majerowska gnozowania nad narzędziem analizy technicznej. Nie pozwalają jednak na wskazanie przewagi uwzględnienia zmienności wariancji w przypadku prognozowania krótkookresowego.Słowa kluczowe: modelowanie stóp zwrotu, CAPM z efektem GARCH, średnia ruchoma.

show abstract

“…Examples of studies that use this equality include Friend andBlume (1975), Frankel (1985), Engel and Rodrigues (1989), Giovanni and Jorion (1989), Thomas and Wickens (1993), Clare, O'Brien, Wickens (1998) andFlavin (2006). Of course most of these authors had other objectives besides estimating risk aversion measures and the argument y in the utility function U(y) differed from study to study.…”

Section: Arrow-pratt Measures Of Risk Aversion and The Mean-variance mentioning

confidence: 99%

“…A second popular approach uses a mean variance framework and obtains measures of risk aversion by equating the Arrow Pratt measures to risk aversion measures defined in a mean-variance setting. Examples of this latter approach include Friend and Blume (1975); Frankel (1985), Engel and Rodrigues (1989), Giovanni and Jorion (1989), Thomas and Wickens (1993); Clare, O'Brien, Thomas and Wickens (1998), and Flavin (2006).…”

Section: Introductionmentioning

confidence: 99%

An alternative explanation for the variation in reported estimates of risk aversion

Conniffe

O’Neill

2013

JOR

View full text Add to dashboard Cite

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. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. There is a large literature estimating Arrow-Pratt coefficients of absolute and relative risk aversion. A striking feature of this literature is the very wide variation in the reported estimates of the coefficients. While there are often legitimate reasons for these differences in the estimates, there is another source of variation that has not been considered to date. The Arrow-Pratt coefficients are properties of the utility functions, but a number of estimates are obtained by equating these to risk aversion measures defined in a mean-variance framework. This paper shows that while the legitimacy of the mean-variance approach may hold under general conditions the additional assumptions invoked when estimating the risk aversion parameter hold only in very restricted circumstances and that serious under or over estimation can easily arise as a result.JEL Classification: C91, D81, G11

show abstract

Tests of international CAPM with time‐varying covariances

Cited by 117 publications

References 47 publications

Fundamental Determinants of National Equity Market Returns: A Perspective on Conditional Asset Pricing

Fundamental Determinants of National Equity Market Returns: A Perspective on Conditional Asset Pricing

Should We Rely on Forecasts of Prices or Returns? The Short Term Approach

An alternative explanation for the variation in reported estimates of risk aversion

Contact Info

Product

Resources

About