Calculating the Equity Risk Premium and the Risk
... a short-term bond. 8 As we see from the yield-curves, yields on long-term bonds tend to be higher. Accordingly, subtracting a higher number from the historical return on equity gives a lower ERP than if the same calculation were done using the average return on short-term bonds. For example, the lat ...
... a short-term bond. 8 As we see from the yield-curves, yields on long-term bonds tend to be higher. Accordingly, subtracting a higher number from the historical return on equity gives a lower ERP than if the same calculation were done using the average return on short-term bonds. For example, the lat ...
US dividends for the long term
... Typically, dividend yields across many US stocks have been below bond yields. Today, however, investors are faced with an exceptional environment in which the S&P 500 dividend yield is higher than the ten-year Treasury yield (Exhibit 1). With today’s low rates and compressed spreads, the yield on a ...
... Typically, dividend yields across many US stocks have been below bond yields. Today, however, investors are faced with an exceptional environment in which the S&P 500 dividend yield is higher than the ten-year Treasury yield (Exhibit 1). With today’s low rates and compressed spreads, the yield on a ...
Prospective Interest Rate Differential and Currency Returns
... we will suffer the well-known “Hurwicz bias” that occurs when the sample size is small. This issue constitutes another difficulty: that our point estimates will be severely downward biased in the early sample period, thereby contaminating the return predictability results. We overcome these two diff ...
... we will suffer the well-known “Hurwicz bias” that occurs when the sample size is small. This issue constitutes another difficulty: that our point estimates will be severely downward biased in the early sample period, thereby contaminating the return predictability results. We overcome these two diff ...
Document
... expect from her investment next year assuming all else remains the same as in the past? • The geometric average answers the question, what rate of return Mary can expect over a five-year period? Copyright © 2011 Pearson Prentice Hall. All rights reserved. ...
... expect from her investment next year assuming all else remains the same as in the past? • The geometric average answers the question, what rate of return Mary can expect over a five-year period? Copyright © 2011 Pearson Prentice Hall. All rights reserved. ...
chapter 3 - Erasmus University Thesis Repository
... days around the announcement date. When we look at the combined gain from M&A, we find a statistically significant return of almost 1,5% for the day of the announcement. It is also of great importance to look at the factors that influence the shareholder value creation. From the cross-sectional anal ...
... days around the announcement date. When we look at the combined gain from M&A, we find a statistically significant return of almost 1,5% for the day of the announcement. It is also of great importance to look at the factors that influence the shareholder value creation. From the cross-sectional anal ...
CLAREMONT McKENNA COLLEGE STOCK MARKET SENTIMENT
... Investor sentiment in the context of this study will be defined as the investment preferences that prevail throughout the market. Investors can become overly-enthusiastic or pessimistic about a particular investment vehicle beyond what market fundamentals should dictate, which can eventually affect ...
... Investor sentiment in the context of this study will be defined as the investment preferences that prevail throughout the market. Investors can become overly-enthusiastic or pessimistic about a particular investment vehicle beyond what market fundamentals should dictate, which can eventually affect ...
The Return Volatility Effect of Stock Splits
... stock split. Many studies thus focus upon examining those explanations. There are also many studies that focus on what the effect of a stock split is. According to textbook theory a stock split should be of economic irrelevance for firm value. This because only outstanding shares increase and the va ...
... stock split. Many studies thus focus upon examining those explanations. There are also many studies that focus on what the effect of a stock split is. According to textbook theory a stock split should be of economic irrelevance for firm value. This because only outstanding shares increase and the va ...
When do Investors Exhibit Stronger Behavioral Biases?
... greater degree of overconfidence among stocks which have greater value ambiguity. Motivated by Zhang (2005) and Jiang, Lee, and Zhang (2005), I employ multiple measures of value ambiguity (idiosyncratic volatility, volume turnover, and firm age), and inspired by Odean (1999), I use k-day post-trade s ...
... greater degree of overconfidence among stocks which have greater value ambiguity. Motivated by Zhang (2005) and Jiang, Lee, and Zhang (2005), I employ multiple measures of value ambiguity (idiosyncratic volatility, volume turnover, and firm age), and inspired by Odean (1999), I use k-day post-trade s ...
Investment Portfolio Review - Christian Brothers Investment Services
... have to contend over the near-term with continued tepid data; late February’s second estimate of Q4 2016 real U.S. GDP was 1.9%, a slowdown from Q3’s 3.5%. Economists’ estimates for Q1 2017 real GDP averaged just below 2% as Q1 ended. While inflation measured by the consumer price index ex-food and ...
... have to contend over the near-term with continued tepid data; late February’s second estimate of Q4 2016 real U.S. GDP was 1.9%, a slowdown from Q3’s 3.5%. Economists’ estimates for Q1 2017 real GDP averaged just below 2% as Q1 ended. While inflation measured by the consumer price index ex-food and ...
Market Risk and Model Risk For a Financial Institution Writing Options
... underlying over an option’s life, and therefore infinite transactions costs. Moreover, financial markets do not remain open continuously, meaning that rebalancing can not always be done when it is needed. In practice, delta hedging is done approximately, with frequent periods between rebalancing tra ...
... underlying over an option’s life, and therefore infinite transactions costs. Moreover, financial markets do not remain open continuously, meaning that rebalancing can not always be done when it is needed. In practice, delta hedging is done approximately, with frequent periods between rebalancing tra ...
Effects of Business Diversification on Asset Risk-Taking
... hedging proxies for underwriting risk and investment risk in the P/L insurance industry. They argue that underwriting risk represent core-business risk for insurers because this is the area in which they have a comparative information advantage while investment risk represents homogeneous risk beca ...
... hedging proxies for underwriting risk and investment risk in the P/L insurance industry. They argue that underwriting risk represent core-business risk for insurers because this is the area in which they have a comparative information advantage while investment risk represents homogeneous risk beca ...
Is the Growth-value Anomaly Related to the Asset Growth Anomaly?
... (see, e.g., Cooper, Gulen, and Schill, 2008; Watanabe, Xu, Yao, Yu, 2013). It refers to high total asset growth firms delivering lower future abnormal stock returns than low total asset growth firms. Both anomalies indicate a negative relation between growth and subsequent abnormal stock returns. It ...
... (see, e.g., Cooper, Gulen, and Schill, 2008; Watanabe, Xu, Yao, Yu, 2013). It refers to high total asset growth firms delivering lower future abnormal stock returns than low total asset growth firms. Both anomalies indicate a negative relation between growth and subsequent abnormal stock returns. It ...
Treasury Bill Yields: Overlooked Information
... This paper seeks to add to this literature by focusing on the possibility that the increase in risk premium and the decrease in riskfree rate almost, but not completely, offset. Thus, the hidden factor might appear to be hidden due to its extremely short halflife in risk-neutral probability measure ...
... This paper seeks to add to this literature by focusing on the possibility that the increase in risk premium and the decrease in riskfree rate almost, but not completely, offset. Thus, the hidden factor might appear to be hidden due to its extremely short halflife in risk-neutral probability measure ...
VALUE -OR iE NTED iN VESTMENTMANAGEMENT Fox Asset
... first $5 million under management, scaling down to .50% for assets above $50 million. Our balanced strategies range from .60% to .90% for the first $5 million under management, scaling down to .40% to .70% for assets above $50 million. Our fixed income strategy fees are .30% for the first $10 millio ...
... first $5 million under management, scaling down to .50% for assets above $50 million. Our balanced strategies range from .60% to .90% for the first $5 million under management, scaling down to .40% to .70% for assets above $50 million. Our fixed income strategy fees are .30% for the first $10 millio ...
A Model of Capital and Crises Zhiguo He Arvind Krishnamurthy May 2011
... Most of our model’s results can be understood by focusing on the dynamics of the equity capital constraint. Consider a given state, described by the specialists’ wealth Wt and the households’ wealth Wth . The capital constraint requires that the household can invest at most mWt (which may be less t ...
... Most of our model’s results can be understood by focusing on the dynamics of the equity capital constraint. Consider a given state, described by the specialists’ wealth Wt and the households’ wealth Wth . The capital constraint requires that the household can invest at most mWt (which may be less t ...
Are abnormal buy and holding returns in mergers subject to value
... significant five-year abnormal return of - 10.3 % and Anderson and Mandelker (1993) spoke of a five-year abnormal return of - 9.3 %. Recent studies of Betton, Eckbo, and Thorburn (2008) reported a negative five-year abnormal return of - 21.9 %. Rau and Vermaelen (1998) reported a 3-year abnormal ret ...
... significant five-year abnormal return of - 10.3 % and Anderson and Mandelker (1993) spoke of a five-year abnormal return of - 9.3 %. Recent studies of Betton, Eckbo, and Thorburn (2008) reported a negative five-year abnormal return of - 21.9 %. Rau and Vermaelen (1998) reported a 3-year abnormal ret ...
Risk Allocation, Debt Fueled Expansion and Financial Crisis ∗ Paul Beaudry
... supply and demand collapsed. This contraction in the volume of trade combined with a high discounting of the limited assets actually being traded is often interpreted as reflecting an adverse selection problem. As the CDOs were backed by mortgages of different quality, there was the potential for a ...
... supply and demand collapsed. This contraction in the volume of trade combined with a high discounting of the limited assets actually being traded is often interpreted as reflecting an adverse selection problem. As the CDOs were backed by mortgages of different quality, there was the potential for a ...
Annual Equity-Based Insurance Guarantees Conference
... retirement savings industry. Milliman’s work helps the clients of life insurance companies, banks, financial advisory platforms and mutual fund firms create strategies for success in retirement. In particular, the Milliman Managed Risk Strategy provides retail investors with institutional quality ma ...
... retirement savings industry. Milliman’s work helps the clients of life insurance companies, banks, financial advisory platforms and mutual fund firms create strategies for success in retirement. In particular, the Milliman Managed Risk Strategy provides retail investors with institutional quality ma ...
Determination of Risk Aversion and Moment
... variance and skewness. Investors favor positive skewness and some will accept a lower mean or higher return variance to obtain higher positive skewness. The study briefly shows how to translate these preference patterns into option strategies that are added to the portfolio. For the skewness analysis ...
... variance and skewness. Investors favor positive skewness and some will accept a lower mean or higher return variance to obtain higher positive skewness. The study briefly shows how to translate these preference patterns into option strategies that are added to the portfolio. For the skewness analysis ...
Presidential Elections and the Stock Market:
... GARCH versus Markov-Switching.6 Second, from a substantive viewpoint, the predominant theoretical prediction and empirical finding in the literature is that if traders or investors anticipate electoral victory by a “left” party –Democrats in the US or Labor in Britain—then the prices of various fina ...
... GARCH versus Markov-Switching.6 Second, from a substantive viewpoint, the predominant theoretical prediction and empirical finding in the literature is that if traders or investors anticipate electoral victory by a “left” party –Democrats in the US or Labor in Britain—then the prices of various fina ...
NBER WORKING PAPER SERIES BELIEFS ARE HETEROGENEOUS
... pricing results when agents differ in risk preference, time preference and/or expectations. It shows that risk tolerance is a critical concept driving savings decisions, consumption allocations, prices and return volatilities. Surprisingly, due to the equilibrium risk sharing, the precautionary savi ...
... pricing results when agents differ in risk preference, time preference and/or expectations. It shows that risk tolerance is a critical concept driving savings decisions, consumption allocations, prices and return volatilities. Surprisingly, due to the equilibrium risk sharing, the precautionary savi ...
CAPITAL MARKETS PRODUCT RISK BOOK
... (disadvantages) and risks of the financial instruments covered therein (the “Capital Markets Products”) so as to enable them to make investment decisions on an informed basis. Part A of this Product Risk Book contains the basic principles related to the Capital Markets Products (cash and derivative ...
... (disadvantages) and risks of the financial instruments covered therein (the “Capital Markets Products”) so as to enable them to make investment decisions on an informed basis. Part A of this Product Risk Book contains the basic principles related to the Capital Markets Products (cash and derivative ...
Transition Risk Toolbox - 2° Investing Initiative
... Key questions in the context of assessing transition risk involve who is doing the assessment and thus what is being assessed (e.g. risk in the real economy vs. risk in financial markets) and the objective of the assessment (e.g. improving asset pricing in financial markets or measuring tail risks). ...
... Key questions in the context of assessing transition risk involve who is doing the assessment and thus what is being assessed (e.g. risk in the real economy vs. risk in financial markets) and the objective of the assessment (e.g. improving asset pricing in financial markets or measuring tail risks). ...
The Time-Varying Liquidity Risk of Value and Growth Stocks
... Using the characteristic liquidity measures of the portfolios, we also show that value stocks are less liquid than growth stocks and this differential increases in bad times. This result also holds for small-value and small-growth stocks. Liu (2006) argues that investors may exhibit liquidity prefe ...
... Using the characteristic liquidity measures of the portfolios, we also show that value stocks are less liquid than growth stocks and this differential increases in bad times. This result also holds for small-value and small-growth stocks. Liu (2006) argues that investors may exhibit liquidity prefe ...
Technological Progress, Industry Rivalry, and Stock Returns
... in the market-wide risk. There are two types of equilibria that characterize the race: collusive equilibria, in which both firms invest simultaneously and leader-follower equilibria, in which the firm with the highest success rate in the innovation process is the first to invest in innovation. The m ...
... in the market-wide risk. There are two types of equilibria that characterize the race: collusive equilibria, in which both firms invest simultaneously and leader-follower equilibria, in which the firm with the highest success rate in the innovation process is the first to invest in innovation. The m ...
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.