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2023 | Buch

Portfolio Theory and Practice Kapitel lesen Erstes Kapitel lesen

Investment Valuation and Asset Pricing

Models and Methods

verfasst von: James W. Kolari, Seppo Pynnönen

Verlag: Springer International Publishing

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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SUCHEN

Über dieses Buch

This textbook is intended to fill a gap in undergraduate finance curriculums by providing an asset pricing text that is accessible for undergraduate finance students. It offers an overview of original works on foundational asset pricing studies that follows their historical publication chronologically throughout the text. Each chapter stays close to the original works of these major authors, including quotations, examples, graphical exhibits, and empirical results. Additionally, it includes statistical concepts and methods as applied to finance. These statistical materials are crucial to learning asset pricing, which often applies statistical tests to evaluate different asset pricing models. It offers practical examples, questions, and problems to help students check their learning and better understand the fundamentals of asset pricing., alongside including PowerPoint slides and an instructor’s manual for professors.

Inhaltsverzeichnis

Frontmatter
Chapter 1. Portfolio Theory and Practice
Abstract
This chapter overviews the portfolio selection process developed by Nobel Laureate Harry Markowitz (1952, 1959). Basic concepts, such as ex ante and ex post valuation, variance, covariance, correlation, diversification, the mean-variance investment parabola, are introduced that are important in the field of asset pricing.
James W. Kolari, Seppo Pynnönen
Chapter 2. Capital Market Conditions
Abstract
This chapter covers different aspects of capital markets that are essential to understanding asset pricing. Topics include perfect capital markets, efficient markets, risk aversion, and normally distributed returns.
James W. Kolari, Seppo Pynnönen
Chapter 3. Capital Asset Pricing Model (CAPM)
Abstract
This chapter covers the now famous Capital Asset Pricing Model (CAPM) as proposed by William Sharpe (Journal of Finance 19:425–442, 1964), for which he was awarded the Nobel Prize in Economics in 1990. The CAPM started a revolution in asset pricing that continues today.
James W. Kolari, Seppo Pynnönen
Chapter 4. The Market Model
Abstract
The famed capital asset pricing model (CAPM) of Treynor (1962), Sharpe (1964), Lintner (1965), and Mossin (1966) is surprisingly elegant in design. To test the CAPM, the market model was invented in the form of a simple regression equation. Early evidence did not support the CAPM. Due to these findings, researchers later proposed new forms of the CAPM and alternative models extending the CAPM to multiple factors.
James W. Kolari, Seppo Pynnönen
Chapter 5. The Zero-Beta CAPM
Abstract
In its early years, as discussed in the last chapter, the CAPM came under question. Empirical tests of the market model found that the relationship between CAPM beta and U.S. stock returns was weaker than expected. Relaxing some of the assumptions of the CAPM, Black (1972) proposed the zero-beta CAPM. This more general form of the CAPM adds a new zero-beta portfolio factor that is uncorrelated with the market factor.
James W. Kolari, Seppo Pynnönen
Chapter 6. Alternative CAPM Specifications
Abstract
Weak early empirical evidence with respect to the CAPM inspired a variety of alternative forms proposed by researchers to take into account realistic aspects of capital markets not considered in its original form. In the last chapter we covered Black’s (1972) zero-beta CAPM allowing short sales and borrowing at rates greater than the riskless rate. Here we review further extensions of the CAPM, including the foundational and more general intertemporal CAPM (ICAPM) which spawned a number of new models such as the international asset pricing model (IAPM), consumption CAPM (CCAPM), production CAPM (PCAPM), and conditional CAPM.
James W. Kolari, Seppo Pynnönen
Chapter 7. The Arbitrage Pricing Theory Model
Abstract
One of the most controversial assumptions of the CAPM is that returns are normally distributed, which implies that agents have quadratic utility functions. This assumption guarantees the mean-variance efficiency of the market portfolio. Also, it leads to a linear equilibrium relation between the expected return on an asset and its sensitivity to the expected market premium (i.e., beta risk). Using this linear relation, Ross (1971, 1974, 1976) developed the arbitrage pricing theory (APT). Based on no-arbitrage conditions, the APT is a more general asset pricing model than the CAPM.
James W. Kolari, Seppo Pynnönen
Chapter 8. Multifactor Models
Abstract
In 1990 William Sharpe was awarded the Nobel Prize in Economics for the CAPM along with Harry Markowitz for portfolio diversification and Merton Miller for corporate valuation. Unfortunately, studies by Fama and French (1992, 1993, 1995, 1996) showed that the CAPM did not work in the real world. They proposed the three-factor model containing the market factor plus two new factors—namely, size and value factors. The new factors are long/short portfolios that improved the goodness-of-fit of the CAPM to stock returns. The three-factor model sparked some controversy that continues today. 
James W. Kolari, Seppo Pynnönen
Chapter 9. Anomalies and Multifactor Models
Abstract
Fama and French (1992, 1993, 1995, 1996) proposed the three-factor model. Their model motivated researchers to propose other multifactor models. Here we review the four-factor models by Carhart (1997), Fama and French (2015), Hou, Xue, and Zhang (2015), and Stambaugh and Yuan (2017), in addition to a six-factor model by Fama and French (2018) as well as a machine learning and artificial intelligence (AI) model by Lettau and Pelger (2020). According to Cochrane (2011) a factor zoo exists nowadays with hundreds of different factors. A new challenge in asset pricing is: Which factors and models should we use?
James W. Kolari, Seppo Pynnönen
Chapter 10. A Special Case of the Zero-Beta CAPM: The ZCAPM
Abstract
A new CAPM dubbed the ZCAPM was recently proposed by Kolari, Liu, and Huang (KLH) (A new model of capital asset prices: Theory and evidence. Palgrave Macmillan, Cham, 2021). In their book, the authors derived the ZCAPM as a special case of the more general zero-beta CAPM of Black (J Bus 45:444–454, 1972). The theoretical ZCAPM is comprised of only two factors: mean excess market returns (beta risk) and the cross-sectional standard deviation of returns for all assets in the market more simply referred to as return dispersion (zeta risk).
James W. Kolari, Seppo Pynnönen
Chapter 11. Event Studies
Abstract
One of the most common applications of asset pricing models is event studies. Today, event studies not only provide evidence on the question of market efficiency but how investors perceive different kinds of information that will impact stock prices. Asset pricing models are used to measure abnormal returns not explained by systematic risk factors. A large body of literature has evolved to investigate the abnormal returns of stocks in response to important news events, including both firm-level announcements and macroeconomic announcements. Short-run and long-run event study tests provide insights into abnormal stock returns as well as market efficiency in terms of how fast markets react to new market information.
James W. Kolari, Seppo Pynnönen
Backmatter
Metadaten
Titel
Investment Valuation and Asset Pricing
verfasst von
James W. Kolari
Seppo Pynnönen
Copyright-Jahr
2023
Electronic ISBN
978-3-031-16784-3
Print ISBN
978-3-031-16783-6
DOI
https://doi.org/10.1007/978-3-031-16784-3