Generalized Sharpe Ratios and Asset Pricing in Incomplete Markets

2000 ◽  
Author(s):  
Ales Cerny
Keyword(s):  
Asset Pricing ◽  
Incomplete Markets ◽  
Sharpe Ratios

scholarly journals Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing

1996 ◽  
Vol 104 (3) ◽  
pp. 443-487 ◽  
Author(s):  
John Heaton ◽  
Deborah J. Lucas
Keyword(s):  
Asset Pricing ◽  
Incomplete Markets ◽  
Risk Sharing

scholarly journals Equity market anomalies in major European economies

2021 ◽  
Vol 18 (2) ◽  
pp. 245-260
Author(s):  
Asheesh Pandey ◽  
Sanjay Sehgal ◽  
Amiya Kumar Mohapatra ◽  
Pradeepta Kumar Samanta
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Five Factor Model ◽  
Equity Market ◽  
Suitable Model ◽  
Investment Strategies ◽  
Economic Uncertainty ◽  
Market Anomalies ◽  
Time Diversification ◽  
Sharpe Ratios

This paper investigates five leading equity market anomalies – size, value, momentum, profitability, and asset growth, for four Western European markets, namely, Germany, France, Italy and Spain, from January 2002 to March 2018. The study tests whether these anomalies reverse under different macro-economic uncertainty conditions, and evaluates if strategies based on time diversification can be formed using these equity market anomalies. Market anomalies were tested using four major asset pricing models – the Capital Asset Pricing Model, the Fama-French three-factor model, the Carhart model, and the Fama-French five-factor model. Macro-economic uncertainty was tested using two proxies, namely VIX and default premiums. Time diversified strategies were examined by estimating Sharpe ratios of combined portfolios formed by combining winner univariate portfolios. Value effect in Germany, Size effect in France and Profitability effect in Italy and Spain provide the highest unadjusted returns on long side strategies. No significant reversal of these anomalies was found under different macroeconomic uncertainties. Asset pricing tests show that CAPM works well for Spain and Italy, while Carhart’s model explains returns in Germany. The Fama-French five factor model does not seem to be a good descriptor of asset pricing for data. No suitable model for explaining asset returns is identified for France. Finally, it is observed that some of the equity market anomalies seem to be countercyclical and therefore provide time diversification opportunities. The study has implications for academicians, investors, and policy makers by providing insights for developing profitable investment strategies and highlighting the efficacy of alternative models as performance benchmarks.

Arbitrage Portfolios

2020 ◽  
Author(s):  
Soohun Kim ◽  
Robert A Korajczyk ◽  
Andreas Neuhierl
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Predictive Power ◽  
Abnormal Returns ◽  
Firm Characteristics ◽  
Pricing Models ◽  
Asset Pricing Models ◽  
Maximal Weight ◽  
Large Panel ◽  
Sharpe Ratios

Abstract We propose a new methodology for forming arbitrage portfolios that utilizes the information contained in firm characteristics for both abnormal returns and factor loadings. The methodology gives maximal weight to risk-based interpretations of characteristics’ predictive power before any attribution is made to abnormal returns. We apply the methodology to simulated economies and to a large panel of U.S. stock returns. The methodology works well in our simulation and when applied to stocks. Empirically, we find the arbitrage portfolio has (statistically and economically) significant alphas relative to several popular asset pricing models and annualized Sharpe ratios ranging from 1.31 to 1.66.

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