A Dynamic Asset Pricing Model with Time-Varying Idiosyncratic Risk

<p>This paper applies the Ibbotson and Sinquefield (1976) method and the Lally (2002) method to New Zealand data over the period 1960-2005 in order to estimate the market risk premium (MRP) in two versions of the capital asset pricing model (CAPM). With respect to the standard CAPM, the resulting Ibbotson estimate of the MRP for New Zealand was 6.11%. The resulting Lally estimate of the MRP ranged from 5.52% (in 1970) to 18.40% (in 1990), with an average of 7.95%, and was 6.40% for 2005. With respect to the simplified Brennan-Lally CAPM, the resulting Ibbotson estimate of the MRP for New Zealand was 8.49%. The resulting Lally estimate of the MRP ranged from 7.91% (in 1970) to 20.79% (in 1990), with an average of 10.33%, and was 8.78% for 2005. The Lally and the Ibbotson estimates of the MRP are similar in general. However, when market leverage is unusually high or low, they diverge significantly. In future, practitioners may need to choose between the estimates from the two methods when market leverage goes beyond the normal level.</p>

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PENGARUH HUMAN CAPITAL (LABOR INCOME) TERHADAP EXPECTED STOCK RETURNS

Jurnal Akuntansi ◽

10.25170/jara.v12i1.58 ◽

2018 ◽

Vol 12 (1) ◽

pp. 58-79

Author(s):

Caecilia Atmini Susilandari

Keyword(s):

Human Capital ◽

Asset Pricing ◽

Stock Returns ◽

Stock Return ◽

Idiosyncratic Risk ◽

Labor Income ◽

Pricing Model ◽

Asset Pricing Model ◽

Industry Level ◽

Expected Stock Returns

This research intended to analyse the use of premium as the proxy of human capital (labor income) in the industry level as one of the factors to measure the expected stock returns other than market, smb, hml, umdand liquidity variable that can be applied in Indonesia.The analysis coveres the human capital (labor income) in the industry level to cross section of stock return and the effect of human capital (labor income) to idiosyncratic risk in the asset pricing model. It usesincome percapita to measure the premium variabel in the period of 2001 – 2011 and 30 stocks portfolio chosen based on the biggest market capitalization value in six sector in the period of 2001 – 2011

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Time-Varying Market Leverage and the Market Risk Premium in New Zealand

10.26686/wgtn.16945501 ◽

2021 ◽

Author(s):

◽

Danyi Bao

Keyword(s):

New Zealand ◽

Asset Pricing ◽

Risk Premium ◽

Market Risk ◽

Capital Asset Pricing ◽

Time Varying ◽

Pricing Model ◽

Capital Asset ◽

Market Risk Premium ◽

Asset Pricing Model

<p>This paper applies the Ibbotson and Sinquefield (1976) method and the Lally (2002) method to New Zealand data over the period 1960-2005 in order to estimate the market risk premium (MRP) in two versions of the capital asset pricing model (CAPM). With respect to the standard CAPM, the resulting Ibbotson estimate of the MRP for New Zealand was 6.11%. The resulting Lally estimate of the MRP ranged from 5.52% (in 1970) to 18.40% (in 1990), with an average of 7.95%, and was 6.40% for 2005. With respect to the simplified Brennan-Lally CAPM, the resulting Ibbotson estimate of the MRP for New Zealand was 8.49%. The resulting Lally estimate of the MRP ranged from 7.91% (in 1970) to 20.79% (in 1990), with an average of 10.33%, and was 8.78% for 2005. The Lally and the Ibbotson estimates of the MRP are similar in general. However, when market leverage is unusually high or low, they diverge significantly. In future, practitioners may need to choose between the estimates from the two methods when market leverage goes beyond the normal level.</p>

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An International Dynamic Asset Pricing Model

10.3386/w7157 ◽

1999 ◽

Cited By ~ 15

Author(s):

Robert Hodrick ◽

David Tat-Chee Ng ◽

Paul Sengmueller

Keyword(s):

Asset Pricing ◽

Pricing Model ◽

Asset Pricing Model ◽

Dynamic Asset Pricing

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