Growth Expectations, Dividend Yields, and Future Stock Returns
... such relative out-of-sample performance. We find that stock yield produces an out-of-sample R2 consistently above 2% for monthly forecasts in our sample period. According to the calculation in Campbell and Thompson (2008), an out-of-sample R2 of 2% translates to return enhancement of 8% per year fo ...
... such relative out-of-sample performance. We find that stock yield produces an out-of-sample R2 consistently above 2% for monthly forecasts in our sample period. According to the calculation in Campbell and Thompson (2008), an out-of-sample R2 of 2% translates to return enhancement of 8% per year fo ...
The Response of Stock Market Volatility to Futures
... expected stock returns. An unexpected monetary policy tightening constitutes negative news to stocks whose future cash flows (dividends) are valued at a higher than expected discount rate. This implies that a monetary policy shock is expected to decrease returns contemporaneously and to increase fut ...
... expected stock returns. An unexpected monetary policy tightening constitutes negative news to stocks whose future cash flows (dividends) are valued at a higher than expected discount rate. This implies that a monetary policy shock is expected to decrease returns contemporaneously and to increase fut ...
NBER WORKING PAPER SERIES Stephen G. Cecchetti
... Asset price bubbles distort decisions throughout the economy and are a source of instability. Wealth effects cause consumption to expand rapidly and then collapse. Increases in equity prices make it easier for firms to finance new projects, causing investment to boom and then bust. The collateral us ...
... Asset price bubbles distort decisions throughout the economy and are a source of instability. Wealth effects cause consumption to expand rapidly and then collapse. Increases in equity prices make it easier for firms to finance new projects, causing investment to boom and then bust. The collateral us ...
HullFund8eCh03ProblemSolutions
... A trader owns 55,000 units of a particular asset and decides to hedge the value of her position with futures contracts on another related asset. Each futures contract is on 5,000 units. The spot price of the asset that is owned is $28 and the standard deviation of the change in this price over the l ...
... A trader owns 55,000 units of a particular asset and decides to hedge the value of her position with futures contracts on another related asset. Each futures contract is on 5,000 units. The spot price of the asset that is owned is $28 and the standard deviation of the change in this price over the l ...
Research on the Dilemma of Speculation in Chinese Stock Market
... formed by the participant interactions. The model is set in two states, mature and immature. In the mature stock market, speculation is not recognized, and shareholders to participate in the business sense of supervision and management, the interests of small shareholders are more secure. Conversely ...
... formed by the participant interactions. The model is set in two states, mature and immature. In the mature stock market, speculation is not recognized, and shareholders to participate in the business sense of supervision and management, the interests of small shareholders are more secure. Conversely ...
NBER WORKING PAPER SERIES NEW FRAMEWORK FOR MEASURING AND MANAGING MACROFINANCIAL
... is the “actual” probability of default. The asset-return probability distribution used to value contingent claims is not the “actual” one but the “risk-adjusted” or “risk-neutral” probability distribution, which substitutes the risk-free interest rate for the actual expected return in the distributi ...
... is the “actual” probability of default. The asset-return probability distribution used to value contingent claims is not the “actual” one but the “risk-adjusted” or “risk-neutral” probability distribution, which substitutes the risk-free interest rate for the actual expected return in the distributi ...
Ambiguous Growth and Asset Prices in Production Economies
... that there are two types of agents in the economy, bond holders who have low elasticity of intertemporal substitution in consumption (henceforth, EIS), and stock holders with high EIS. Thus, separating the SDF (also known as the pricing kernel) for pricing bonds and stock returns. This method addres ...
... that there are two types of agents in the economy, bond holders who have low elasticity of intertemporal substitution in consumption (henceforth, EIS), and stock holders with high EIS. Thus, separating the SDF (also known as the pricing kernel) for pricing bonds and stock returns. This method addres ...
New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability
... expected return in the distribution. This risk-neutral distribution is the dashed line in Figure 1(b) with expected rate of return r, the risk-free rate. Thus, the “risk-adjusted” probability of default calculated using the “risk-neutral” distribution is larger than the actual probability of default ...
... expected return in the distribution. This risk-neutral distribution is the dashed line in Figure 1(b) with expected rate of return r, the risk-free rate. Thus, the “risk-adjusted” probability of default calculated using the “risk-neutral” distribution is larger than the actual probability of default ...
Country risk, country risk indices, and valuation of FDI: A real options
... is common to use three categories when describing foreign investments: lending, equity investment, and foreign direct investment (FDI), see Figure 1. Lending covers direct lending or the purchase of bonds from the state, government, or from private companies in a country. Equity may cover investment ...
... is common to use three categories when describing foreign investments: lending, equity investment, and foreign direct investment (FDI), see Figure 1. Lending covers direct lending or the purchase of bonds from the state, government, or from private companies in a country. Equity may cover investment ...
OPTIMAL PORTFOLIO UNDER VaR AND ES 1. Introduction
... be calculated using the Outer Product of Gradient matrices. However, we re-estimate the model, and it would be difficult to control the significance of the parameters during the whole procedure. 2.5. Portfolio optimization ...
... be calculated using the Outer Product of Gradient matrices. However, we re-estimate the model, and it would be difficult to control the significance of the parameters during the whole procedure. 2.5. Portfolio optimization ...
To hedge or not to hedge? Evaluating currency
... When the portfolio is fully hedged, wf equals zero and the two last terms drop out, so that the volatility of the portfolio equals that of the underlying foreign asset: σp2 = σs2. 10 The volatility ratio is higher for lower-volatility assets. For example, using σs of 5% for bonds and 20% for stocks ...
... When the portfolio is fully hedged, wf equals zero and the two last terms drop out, so that the volatility of the portfolio equals that of the underlying foreign asset: σp2 = σs2. 10 The volatility ratio is higher for lower-volatility assets. For example, using σs of 5% for bonds and 20% for stocks ...
A case for high-yield bonds
... those of other major asset classes, including equities, and with significantly less downside.1 As the name indicates, high-yield bonds are indeed a higher-yielding asset class that may offer both higher income and higher total return than other bonds. Even so, the high-yield bond market is often vie ...
... those of other major asset classes, including equities, and with significantly less downside.1 As the name indicates, high-yield bonds are indeed a higher-yielding asset class that may offer both higher income and higher total return than other bonds. Even so, the high-yield bond market is often vie ...
The Long-Run Performance of German Stock Mutual Funds
... funds in 1972 - Concentra, Investa, Unifonds, Deka-Fonds, Fondak, Adifonds, Fondra, and Adiverba together controlled more than 95 % of total assets under management at the end of the year. At the end of 1997 the eight largest funds in our sample had close to 70 % of the total assets managed by our ...
... funds in 1972 - Concentra, Investa, Unifonds, Deka-Fonds, Fondak, Adifonds, Fondra, and Adiverba together controlled more than 95 % of total assets under management at the end of the year. At the end of 1997 the eight largest funds in our sample had close to 70 % of the total assets managed by our ...
SUMMARY PROSPECTUS Tortoise North American Pipeline Fund
... Derivatives Risk. Derivatives are financial contracts whose value depend on, or are derived from, the value of an underlying asset, reference rate, or index. The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in sec ...
... Derivatives Risk. Derivatives are financial contracts whose value depend on, or are derived from, the value of an underlying asset, reference rate, or index. The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in sec ...
The cost of capital of levered equity is equal to the cost of capital of
... with leverage, VL, by discounting its free cash flow using the weighted average cost of capital. The value of the interest tax shield can then be found by comparing the value of the levered firm, VL, to the unlevered value, VU, of the free cash flow discounted at the firm’s unlevered cost of capit ...
... with leverage, VL, by discounting its free cash flow using the weighted average cost of capital. The value of the interest tax shield can then be found by comparing the value of the levered firm, VL, to the unlevered value, VU, of the free cash flow discounted at the firm’s unlevered cost of capit ...
Asset Allocation by Institutional Investors after the Recent Financial
... of US Treasury securities by corporate and public plans. Data from the U.S. Federal Reserve Board indicates that from 2008 to 2009, outstanding public debt rose by 22%. Most of this increase was concentrated in instruments with one- to 10-year maturities. During the year, state and local government ...
... of US Treasury securities by corporate and public plans. Data from the U.S. Federal Reserve Board indicates that from 2008 to 2009, outstanding public debt rose by 22%. Most of this increase was concentrated in instruments with one- to 10-year maturities. During the year, state and local government ...
The Impact of Risk Controls and Strategy-Specific Risk Diversification on Extreme Risk
... cap-weighted index, which may result in temporary underperformance. It has been shown empirically that sector and country risks are not priced in and it would therefore make sense for investors to try to avoid them. For an empirical analysis, see for example Cappiello et al. (2008). Secondly, and mo ...
... cap-weighted index, which may result in temporary underperformance. It has been shown empirically that sector and country risks are not priced in and it would therefore make sense for investors to try to avoid them. For an empirical analysis, see for example Cappiello et al. (2008). Secondly, and mo ...
Derivative Risk Management Statement Part A
... Adjust asset exposures within defined parameters. 4. Strategy delegated to investment manager The management of the Fund is executed by Robeco HK, while the management of The Underlying Fund is outsourced by Robeco Institutional Asset Management B.V. (“RIAM”) to Robeco Investment Management (“Robeco ...
... Adjust asset exposures within defined parameters. 4. Strategy delegated to investment manager The management of the Fund is executed by Robeco HK, while the management of The Underlying Fund is outsourced by Robeco Institutional Asset Management B.V. (“RIAM”) to Robeco Investment Management (“Robeco ...
The Only Spending Rule Article You Will Ever Need
... assets. These reasons alone have likely kept investors from taking advantage of the annuity concept (nor do they often set up a literal consumption hedge, a closely related strategy). So, in light of the fact that most people are going to hold mixed portfolios earning volatile returns, how can we th ...
... assets. These reasons alone have likely kept investors from taking advantage of the annuity concept (nor do they often set up a literal consumption hedge, a closely related strategy). So, in light of the fact that most people are going to hold mixed portfolios earning volatile returns, how can we th ...
Questions on subsections 1/2/3/5 of Chapter 41E Section 8
... Q9. So what asset values should be used as reference values in this regulation? Other than as set out in the responses to the above questions, there is no explicit reference within the ICO of how assets should be valued for life insurance business. However, it should be noted that, under Section 4 o ...
... Q9. So what asset values should be used as reference values in this regulation? Other than as set out in the responses to the above questions, there is no explicit reference within the ICO of how assets should be valued for life insurance business. However, it should be noted that, under Section 4 o ...
Managing Investment Risk (M)
... As an investor, you have more control over some risks than over others. Let’s say that the company in which Investor A bought stock failed because of poor management decisions. This is called a nonsystematic risk, because the risk lies with the individual investment rather than with shifts in the ...
... As an investor, you have more control over some risks than over others. Let’s say that the company in which Investor A bought stock failed because of poor management decisions. This is called a nonsystematic risk, because the risk lies with the individual investment rather than with shifts in the ...
Are European equity markets efficient? New
... similar features to Brownian Motion, but with increments that are long-range dependent and therefore non-random (Mandelbrot & van Ness, 1968). Long-range dependence (at all time scales) in a selfaffine returns series is represented by the parameter 0 b H b 1. For 0 b H b 0.5, the values of the series ...
... similar features to Brownian Motion, but with increments that are long-range dependent and therefore non-random (Mandelbrot & van Ness, 1968). Long-range dependence (at all time scales) in a selfaffine returns series is represented by the parameter 0 b H b 1. For 0 b H b 0.5, the values of the series ...
Chapter 2 Value at Risk and other risk measures 1 Motivation and
... As we have already noted in the introduction, risk measurement based on proper risk measures is one of the fundamental pillars of the risk management. In this chapter, we will address in details the issue of such risk measures. Let us start with a practical question. Imagine you have bought $1000. H ...
... As we have already noted in the introduction, risk measurement based on proper risk measures is one of the fundamental pillars of the risk management. In this chapter, we will address in details the issue of such risk measures. Let us start with a practical question. Imagine you have bought $1000. H ...
Using out-of-sample errors in portfolio optimization
... risk and expected return of a set of stocks. He estimates in a historical sample the betas of each stock with respect to each factor, their alphas and the correlation of residuals between all stocks in the universe. But as the figure shows all of these inputs regress considerably to the mean in the ...
... risk and expected return of a set of stocks. He estimates in a historical sample the betas of each stock with respect to each factor, their alphas and the correlation of residuals between all stocks in the universe. But as the figure shows all of these inputs regress considerably to the mean in the ...
The Relationship between Information Asymmetry and Stock Return
... and cross sectional), specifically we will use Seemingly Unrelated Regression (SUR), which is used when the data is composed from long time series (such as daily observations) and small number of sectors (Wooldridge, ...
... and cross sectional), specifically we will use Seemingly Unrelated Regression (SUR), which is used when the data is composed from long time series (such as daily observations) and small number of sectors (Wooldridge, ...
Beta (finance)
In finance, the beta (β) of an investment is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors. The market portfolio of all investable assets has a beta of exactly 1. A beta below 1 can indicate either an investment with lower volatility than the market, or a volatile investment whose price movements are not highly correlated with the market. An example of the first is a treasury bill: the price does not go up or down a lot, so it has a low beta. An example of the second is gold. The price of gold does go up and down a lot, but not in the same direction or at the same time as the market.A beta greater than one generally means that the asset both is volatile and tends to move up and down with the market. An example is a stock in a big technology company. Negative betas are possible for investments that tend to go down when the market goes up, and vice versa. There are few fundamental investments with consistent and significant negative betas, but some derivatives like equity put options can have large negative betas.Beta is important because it measures the risk of an investment that cannot be reduced by diversification. It does not measure the risk of an investment held on a stand-alone basis, but the amount of risk the investment adds to an already-diversified portfolio. In the capital asset pricing model, beta risk is the only kind of risk for which investors should receive an expected return higher than the risk-free rate of interest.The definition above covers only theoretical beta. The term is used in many related ways in finance. For example, the betas commonly quoted in mutual fund analyses generally measure the risk of the fund arising from exposure to a benchmark for the fund, rather than from exposure to the entire market portfolio. Thus they measure the amount of risk the fund adds to a diversified portfolio of funds of the same type, rather than to a portfolio diversified among all fund types.Beta decay refers to the tendency for a company with a high beta coefficient (β > 1) to have its beta coefficient decline to the market beta. It is an example of regression toward the mean.