Persuasion by Dimension Reduction
In: Swiss Finance Institute Research Paper No. 21-69
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In: Swiss Finance Institute Research Paper No. 21-69
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In: Journal of international economics, Band 118, S. 293-315
ISSN: 0022-1996
In: BIS Quarterly Review March 2019
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In: BIS Working Paper No. 743
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In: Swiss Finance Institute Research Paper No. 18-14
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In: NBER Working Paper No. w25032
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In: BIS Working Paper No. 761
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In: CEPR Discussion Paper No. DP12623
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In: CEPR Discussion Paper No. DP13182
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In: International journal of forecasting, Band 26, Heft 4, S. 836-857
ISSN: 0169-2070
In: Review of financial economics: RFE, Band 18, Heft 3, S. 113-123
ISSN: 1873-5924
AbstractThis paper presents an empirical evaluation of recently proposed asset pricing models which extend the standard preference specification by a reference level of consumption. We motivate an alternative model that accounts for the return on human capital as a determinant of the reference level. Our analysis is based on a broad cross‐section of test assets, which provides a level playing field for a comparison to established benchmark models. The reference level model extended by human capital does a good job in explaining size and value premia. Estimated on Fama and French's size and book‐to‐market sorted portfolios, it outperforms Lettau and Ludvigson's scaled CCAPM and delivers average pricing errors comparable to the Fama–French three‐factor model.
In: Discussion paper 06-43
We study the performance of conditional asset pricing models in explaining the German cross-section of stock returns. Our test assets are portfolios sorted by size and book-to-market as in the paper by Fama and French (1993). Our results show that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved substantially when allowing for time-varying parameters of the stochastic discount factor. A conditional CAPM with the term spread as a conditioning variable is able to explain the cross-section of German stock returns about as well as the Fama-French model. Structural break tests do not indicate parameter instability of the model - whereas the reverse is found for the Fama-French model. Unconditional model specifications however do a better job than conditional ones at capturing time-series predictability of the test portfolio returns.
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