Essays on asset pricing
In the first chapter, I model the cross section of equity securities inside a long-run risks economy of Bansal and Yaron (2004). Consistent with the implications of the model. I show a new empirical stylized fact: momentum portfolios have time-varying long-run consumption betas and time-varying expected returns. The time variation is driven by interactions between security-level expected returns, long-run risk factor realizations during the formation period and the momentum selection mechanism. Adjusting portfolio realized returns for model-implied time-varying expected returns eliminates the majority of momentum profits. Simulations of a firm-level model produce a substantial momentum effect while simultaneously generating a large equity premium and matching other relevant moments of the data such as transitions of securities across momentum portfolios. In the second chapter, I estimate the Campbell and Cochrane (1999) external habit model using the efficient method of moments and study the estimator's small sample properties for a variety of auxiliary models fit to the observed time series. A solution of the model is required to carry out the estimation procedure: a version of the parameterized expectations simulation-based algorithm of den Haan and Marcet (1994) is utilized to approximate the wealth-to-consumption ratio in the model. I find that the EMM procedure generally performs well and produces close to unbiased estimates. However, long simulated samples must be used to achieve reasonable accuracy.
|Year of publication:||
|Type of publication:||Other|
Dissertations available from ProQuest
Saved in favorites
Similar items by subject
Find similar items by using search terms and synonyms from our Thesaurus for Economics (STW).