1 / 6

Relaxing Assumptions in Asset Pricing

Relaxing Assumptions in Asset Pricing. Financial Management Association Doctoral Student Symposium October 2007. Standard (Old) Assumptions: -Homogeneous investors -Constant distributions -Mean variance world

belle
Download Presentation

Relaxing Assumptions in Asset Pricing

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Relaxing Assumptions in Asset Pricing Financial Management Association Doctoral Student Symposium October 2007

  2. Standard (Old) Assumptions: -Homogeneous investors -Constant distributions -Mean variance world As issues of “fit” arise in the data, which of these should we relax (first)?

  3. Recent papers: I) -Heterogeneity in investors’ preferences Dumas (1989) Wang (1996) Chan & Kogan (2002) Bhamra & Uppal (2007) Garleanu & Panageas (2007) Xiouros & Zapatero (2007) Intuition of how differences in risk aversion could lead to time-variation in price of risk What are interesting ways to test this?

  4. II) Other sources of time variation through business cycle -States of the economy Changes in conditional distribution of consumption growth -Xiouros & Zapatero (2007) What might this be related to?

  5. III) Investors care about more or different moments of distribution: -skewness -kurtosis -downside risk Note: can use derivative markets to assess/estimate importance of these pieces of distribution (Bakshi,Kapadia & Madan)

  6. Other: Trading: -Fill rates -How does one measure fill rates (let alone execution cost) of order that has been submitted and canceled many times? -What about internal crosses, and dark pools of liquidity? -Back to heterogeneity

More Related