scholarly journals Stock returns, risk factor loadings, and model predictions: A test of the CAPM and the Fama -French 3 -factor model

2009 ◽  
Author(s):  
Daniel Suh
Keyword(s):  
Risk Factor ◽  
Stock Returns ◽  
Factor Model ◽  
Factor Loadings ◽  
Model Predictions

scholarly journals Multilayer Network Risk Factor Pricing Model

Complexity ◽  
2020 ◽  
Vol 2020 ◽  
pp. 1-6
Author(s):  
Yu Liu ◽  
Conglin Hu ◽  
Lei Wang ◽  
Kun Yang
Keyword(s):  
Risk Factor ◽  
Stock Returns ◽  
Factor Model ◽  
Positive Impact ◽  
Pricing Model ◽  
Multilayer Network ◽  
Excess Stock Returns ◽  
Network Risk ◽  
The Impact ◽  
Three Factor

This paper proposes a multilayer network risk factor pricing model to depict the impact of interactions between stocks on excess stock returns by constructing the network risk factor based on the stock multilayer network and introducing it to the traditional three-factor pricing model. According to China’s stock market data, we find that compared with the traditional three-factor model, the multilayer network risk factor pricing model can achieve higher fitting degree. Meanwhile, the multilayer network risk factor has a significant positive impact on the excess stock returns in most cases.

An investor’s perspective on risk-models and characteristic-models

2016 ◽  
Vol 17 (3) ◽  
pp. 262-276 ◽  
Author(s):  
Christian Fieberg ◽  
Thorsten Poddig ◽  
Armin Varmaz
Keyword(s):  
Risk Factor ◽  
Portfolio Optimization ◽  
Stock Returns ◽  
Optimization Approach ◽  
Investment Strategies ◽  
Cross Sectional ◽  
Content Type ◽  
Factor Loadings ◽  
Market Portfolio ◽  
Out Of Sample

Purpose In capital markets, research risk factor loadings and characteristics are considered as opposing explanations for the cross-sectional dispersion in average stock returns. However, there is little known about the performance an investor would obtain who believes either in the characteristics explanation (CB-investor) or in the risk factor loadings explanation (RB-investor). The purpose of this paper is to compare the performance of CB- and RB-investors. Design/methodology/approach To compare the competing strategies, the authors propose a simple new approach to equity portfolio optimization in the style of Brandt et al. (2009) by modeling the portfolio weight in each asset as a function of the asset's risk factor loadings or characteristics. The authors perform an empirical analysis on the German stock market, exploiting the risk factor loadings from the Carhart (1997) four-factor model and the respective characteristics size, book-to-market equity ratio and momentum. Findings The results show that investment strategies relying on characteristics (particularly on momentum) outperform risk-based investment strategies in horse races. These findings hold in- and out-of-sample. Furthermore, the characteristics-based investment strategies outperform a value-weighted market portfolio strategy in- and out-of-sample. Originality/value The authors introduce a portfolio optimization approach that enables investors to directly link portfolio decisions to the firm’s characteristics or risk factor loadings.

Information risk, stock returns, and the cost of capital in China

2016 ◽  
Vol 6 (1) ◽  
pp. 77-95 ◽  
Author(s):  
Raheel Safdar ◽  
Chen Yan
Keyword(s):  
Regression Analysis ◽  
Risk Factor ◽  
Stock Returns ◽  
Cost Of Capital ◽  
Factor Model ◽  
Cost Of Debt ◽  
Firm Level ◽  
Cross Sectional ◽  
Content Type ◽  
Information Risk

Purpose – The purpose of this paper is to investigate information risk in relation to cost of capital and, also, whether information risk is a priced risk factor in China. Design/methodology/approach – The authors used accruals quality (AQ) as the measure of information risk and employed multiple regression analysis and Fama-Macbeth regressions to investigate association of AQ with cost of capital and future realized stock returns, respectively. Moreover, two-stage cross-sectional regression analysis is performed, both at firm and at portfolio levels, to test if an AQ factor is a priced risk factor in China. Findings – The authors found poor AQ being associated with higher cost of equity but this relationship is not significant in subsample of state-owned enterprises (SOEs). The results do not support any association between AQ and cost of debt in China. Further, the authors found poor AQ being positively associated with future realized stock returns and the authors also found evidence of market pricing of an AQ factor in addition to existing factors in Fama-French three-factor model in firm level analysis. However, subsample analysis revealed that AQ is not priced in case of SOEs. Research limitations/implications – The study sample is comprised of A-Shares only and the generalization of the findings is limited by the peculiar institutional setup and other unique characteristics of Chinese capital market. Originality/value – This study contributes to literature by providing novel findings on the relationship between information risk and cost of capital in Chinese context and it provides further insight into how and if investors value information risk.

Dividend Risk Premia

2019 ◽  
Vol 55 (4) ◽  
pp. 1199-1242
Author(s):  
Georg Cejnek ◽  
Otto Randl
Keyword(s):  
United States ◽  
Risk Factor ◽  
United Kingdom ◽  
Time Variation ◽  
Factor Model ◽  
International Markets ◽  
Risk Premia ◽  
Excess Returns ◽  
Stock Indices ◽  
Bond Risk

This article studies time variation in the expected excess returns of traded claims on dividends, bonds, and stock indices for international markets. We introduce a novel dividend risk factor that complements the bond risk factor of Cochrane and Piazzesi (2005). By aggregating over 4 regions (United States, United Kingdom, Eurozone, and Japan), we create global dividend and bond factors. Our global 2-factor model captures the excess returns of most Morgan Stanley Capital International (MSCI) country indices, as well as a variety of other test assets. Our findings highlight the value of the information contained in dividend and bond forward curves and suggest substantial comovement in international risk premia.

scholarly journals Choosing Factors for the Vietnamese Stock Market

2021 ◽  
Vol 14 (3) ◽  
pp. 96
Author(s):  
Nina Ryan ◽  
Xinfeng Ruan ◽  
Jin E. Zhang ◽  
Jing A. Zhang
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Factor Models ◽  
Marginal Contribution ◽  
Return On Equity ◽  
Factor Modeling ◽  
Three Factor ◽  
Better Than

In this paper, we test the applicability of different Fama–French (FF) factor models in Vietnam, we investigate the value factor redundancy and examine the choice of the profitability factor. Our empirical evidence shows that the FF five-factor model has more explanatory power than the FF three-factor model. The value factor remains important after the inclusion of profitability and investment factors. Operating profitability performs better than cash and return-on-equity (ROE) profitability as a proxy for the profitability factor in FF factor modeling. The value factor and operating profitability have the biggest marginal contribution to a maximum squared Sharpe ratio for the five-factor model factors, highlighting the value factor (HML) non-redundancy in describing stock returns in Vietnam.

Information risk, stock returns, and asset pricing: Evidence from China

2017 ◽  
Vol 30 (4) ◽  
pp. 379-394 ◽  
Author(s):  
Raheel Safdar ◽  
Chen Yan
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Empirical Literature ◽  
Firm Level ◽  
Cross Sectional ◽  
Market Pricing ◽  
Content Type ◽  
Information Risk ◽  
Accruals Quality ◽  
Three Factor

Purpose This study aims to investigate information risk in relation to stock returns of a firm and whether information risk is priced in China. Design/methodology/approach The authors used accruals quality (AQ) as their measure of information risk and performed Fama-Macbeth regressions to investigate association of AQ with future realized stock returns. Moreover, two-stage cross-sectional regression analysis was performed, both at firm level and at portfolio level, to test if the AQ factor is priced in China in addition to existing factors in the Fama French three-factor model. Findings The authors found poor AQ being associated with higher future realized stock returns. Moreover, they found evidence of market pricing of AQ in addition to existing factors in the Fama French three-factor model. Further, subsample analysis revealed that investors value AQ more in non-state owned enterprises than in state owned enterprises. Research limitations/implications The study sample comprises A-shares only and the generalization of the findings is limited by the peculiar institutional and economic setup in China. Originality/value This study contributes to market-based accounting literature by providing further insight into how and if investors value information risk, and it seeks to fill gap in empirical literature by providing evidence from the Chinese capital market.

The performance of the Broad Based Black Economic Empowerment compliant listed property firms in South Africa

2016 ◽  
Vol 34 (1) ◽  
pp. 3-26 ◽  
Author(s):  
Omokolade Akinsomi ◽  
Katlego Kola ◽  
Thembelihle Ndlovu ◽  
Millicent Motloung
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Stock Exchange ◽  
Sharpe Ratio ◽  
Economic Empowerment ◽  
Content Type ◽  
Black Economic ◽  
Black Economic Empowerment ◽  
The Government ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of Broad-Based Black Economic Empowerment (BBBEE) on the risk and returns of listed and delisted property firms on the Johannesburg Stock Exchange (JSE). The study was investigated to understand the impact of Black Economic Empowerment (BEE) property sector charter and effect of government intervention on property listed markets. Design/methodology/approach – The study examines the performance trends of the listed and delisted property firms on the JSE from January 2006 to January 2012. The data were obtained from McGregor BFA database to compute the risk and return measures of the listed and delisted property firms. The study employs a capital asset pricing model (CAPM) to derive the alpha (outperformance) and beta (risk) to examine the trend amongst the BEE and non-BEE firms, Sharpe ratio was also employed as a measurement of performance. A comparative study is employed to analyse the risks and returns between listed property firms that are BEE compliant and BEE non-compliant. Findings – Results show that there exists differences in returns and risk between BEE-compliant firms and non-BEE-compliant firms. The study shows that BEE-compliant firms have higher returns than non-BEE firms and are less risky than non-BEE firms. By establishing this relationship, this possibly affects the investor’s decision to invest in BEE firms rather than non-BBBEE firms. This study can also assist the government in strategically adjusting the policy. Research limitations/implications – This study employs a CAPM which is a single-factor model. Further study could employ a multi-factor model. Practical implications – The results of this investigation, with the effects of BEE on returns, using annualized returns, the Sharpe ratio and alpha (outperformance), results show that BEE firms perform better than non-BEE firms. These results pose several implications for investors particularly when structuring their portfolios, further study would need to examine the role of BEE on stock returns in line with other factors that affect stock returns. The results in this study have several implications for government agencies, there may be the need to monitor the effect of the BEE policies on firm returns and re-calibrate policies accordingly. Originality/value – This study investigates the performance of listed property firms on the JSE which are BEE compliant. This is the first study to investigate listed property firms which are BEE compliant.

Sign in / Sign up

Export Citation Format

Share Document