Empirical-Evidence-on-Se課件(PPT 72頁(yè))

1、CHAPTER 13Empirical Evidence on Security Returns第1頁(yè)，共72頁(yè)。Overview of InvestigationReturn-beta relationships are widely used in actual financial practice.The CAPM predicts expected rates of return on assets, relative to a market portfolio of all risky assets.13-2第2頁(yè)，共72頁(yè)。Overview of InvestigationA mu

2、ltifactor capital market usually is postulated. A broad market index (e.g. the S&P 500) represents one of the factors.Well diversified portfolios are often substituted for individual securities.To overcome CAPM testing difficulties:13-3第3頁(yè)，共72頁(yè)。The Index Model and the Single-Factor APTExpected Retur

3、n-Beta RelationshipEstimating the SCL13-4第4頁(yè)，共72頁(yè)。Tests of the CAPMTests of the expected return beta relationship: First Pass RegressionEstimate beta, average risk premiums and nonsystematic riskSecond PassUse estimates from the first pass to see if model is supported by the dataSML slope is “too fl

4、at” and intercept is “too high”.13-5第5頁(yè)，共72頁(yè)。Single Factor Test ResultsReturn %BetaCAPMEstimated SML13-6第6頁(yè)，共72頁(yè)。Rolls CriticismThe only testable hypothesis is whether the market portfolio is mean-variance efficient.Sample betas conform to the SML relationship because all samples contain an infinite

5、 number of ex post mean-variance efficient portfolios.CAPM is not testable unless we know the exact composition of the true market portfolio and use it in the tests.Benchmark error due to proxy for M13-7第7頁(yè)，共72頁(yè)。Measurement Error in BetaProblem: If beta is measured with error, then the slope coeffic

6、ient of the regression equation will be biased downward and the intercept biased upward.Solution: Replace individual assets with a set of portfolios with small nonsystematic components and widely spaced betas.Fama and MacBeth13-8第8頁(yè)，共72頁(yè)。Table 13.1 Summary of Fama and MacBeth13-9第9頁(yè)，共72頁(yè)。Summary of

7、CAPM TestsExpected rates of return are linear and increase with beta, the measure of systematic risk.Expected rates of return are not affected by nonsystematic risk.13-10第10頁(yè)，共72頁(yè)。Human Capital and Cyclical Variationsin Asset BetasJagannathan and Wang study shows two important deficiencies in tests

8、of the single-index model:Many assets are not traded, notably, human capital. A human capital factor may be important in explaining returns.Betas are cyclical.13-11第11頁(yè)，共72頁(yè)。Table 13.2 Evaluation of Various CAPM Specifications13-12第12頁(yè)，共72頁(yè)。Table 13.3 Determinants of Stockholdings13-13第13頁(yè)，共72頁(yè)。Test

9、s of the Multifactor ModelWhich factors or sources of risk should have risk premiums?CAPM and APT do not tell us!13-14第14頁(yè)，共72頁(yè)。Tests of the Multifactor ModelChen, Roll and Ross 1986 StudyFactorsGrowth rate in industrial productionChanges in expected inflationUnexpected inflationUnexpected changes i

10、n risk premiums on bondsUnexpected changes in term premium on bonds13-15第15頁(yè)，共72頁(yè)。Study Structure & ResultsMethod: Two-stage regression with portfolios constructed by size based on market value of equitySignificant factors: industrial production, risk premium on bonds and unanticipated inflationMark

11、et index returns were not statistically significant in the multifactor model13-16第16頁(yè)，共72頁(yè)。Fama-French Three Factor ModelSize and book-to-market ratios explain returns on securities.Smaller firms experience higher returns.High book to market firms experience higher returns (value style).Returns are

12、explained by size, book to market and by beta.13-17第17頁(yè)，共72頁(yè)。Interpretation of Three-Factor ModelSize and value are priced risk factors, consistent with APT.Alternatively, premiums could be due to investor irrationality or behavioral biases.13-18第18頁(yè)，共72頁(yè)。Risk-Based InterpretationsLiew and VassalouS

13、tyle seems to predict GDP growth and relate to the business cycle.Petkova and ZhangWhen the economy is expanding, value beta growth beta13-19第19頁(yè)，共72頁(yè)。Figure 13.1 Difference in Return to Factor Portfolios13-20第20頁(yè)，共72頁(yè)。Figure 13.2 HML Beta in Different Economic States13-21第21頁(yè)，共72頁(yè)。Behavioral Explan

14、ations for Value Premium“Glamour firms” are characterized by recent good performance, high prices, and lower book-to-market ratios.High prices reflect excessive optimism plus overreaction and extrapolation of good news.Chan, Karceski and Lakonishok LaPorta, Lakonishok, Shleifer and Vishny13-22第22頁(yè)，共

15、72頁(yè)。Figure 13.3 The Book-to-Market Ratio13-23第23頁(yè)，共72頁(yè)。Figure 13.4 Value minus Glamour Returns Surrounding Earnings Announcements13-24第24頁(yè)，共72頁(yè)。Momentum: A Fourth FactorThe original Fama-French model augmented with a momentum factor has become a common four-factor model used to evaluate abnormal per

16、formance of a stock portfolio.Momentum may be related to liquidity.13-25第25頁(yè)，共72頁(yè)。Liquidity and Asset PricingLiquidity involves trading costs, ease of sale, necessary price concessions to effect a quick transaction, market depth, price predictability.13-26第26頁(yè)，共72頁(yè)。Liquidity and Asset PricingPstor a

17、nd Stambaugh studied price reversals.Conclusion: Liquidity risk is a priced factor.Price reversals may occur when traders have to offer higher purchase prices or accept lower selling prices to complete their trades in a timely manner.13-27第27頁(yè)，共72頁(yè)。Liquidity and Efficient Market AnomaliesPstor and S

18、tambaugh suggest that the liquidity risk factor may account for the profitability of the momentum strategy.Sadka shows that the liquidity risk premium explains 40-80% of the abnormal returns to the momentum and postearnings announcement drift strategies.13-28第28頁(yè)，共72頁(yè)。Equity Premium PuzzleThe equity

19、 premium puzzle says :historical excess returns are too highand/or our usual estimates of risk aversion are too low.13-29第29頁(yè)，共72頁(yè)。Consumption Growth and Market Rates of ReturnWhat matters to investors is not their wealth per se, but their lifetime flow of consumption.Measure risk as the covariance

20、of returns with aggregate consumption.13-30第30頁(yè)，共72頁(yè)。Consumption Growth and Market Rates of ReturnThe lower panel of Table 13.6 shows:a high book-to-market ratio is associated with a higher consumption betalarger firm size is associated with a lower consumption beta.13-31第31頁(yè)，共72頁(yè)。Table 13.6 Annual

21、Excess Returns and Consumption Betas13-32第32頁(yè)，共72頁(yè)。Figure 13.6 Cross-Section of Stock Returns: Fama-French 25 Portfolios, 1954-200313-33第33頁(yè)，共72頁(yè)。Expected versus Realized ReturnsFama and French Found an equity premium only after 1949Capital gains significantly exceeded the dividend growth rate in mo

22、dern times.Equity premium may be due to unanticipated capital gains.13-34第34頁(yè)，共72頁(yè)。Survivorship BiasEstimating risk premiums from the most successful country and ignoring evidence from stock markets that did not survive for the full sample period will impart an upward bias in estimates of expected r

23、eturns. The high realized equity premium obtained for the United States may not be indicative of required returns.13-35第35頁(yè)，共72頁(yè)。Liquidity and the Equity Premium PuzzlePart of the equity premium is almost certainly compensation for liquidity risk rather than just the (systematic) volatility of retur

24、ns.Ergo, the equity premium puzzle may be less of a puzzle than it first appears.13-36第36頁(yè)，共72頁(yè)。Behavioral Explanations of the Equity Premium PuzzleBarberis and Huang explain the puzzle as an outcome of irrational investor behavior.The premium is the result of narrow framing and loss aversion.Invest

25、ors ignore low correlation of stocks with other forms of wealthHigher risk premiums result13-37第37頁(yè)，共72頁(yè)。CHAPTER 14Bond Prices and Yields第38頁(yè)，共72頁(yè)。Bonds are debt. Issuers are borrowers and holders are creditors.The indenture is the contract between the issuer and the bondholder.The indenture gives t

26、he coupon rate, maturity date, and par value.Bond Characteristics13-39第39頁(yè)，共72頁(yè)。Face or par value is typically $1000; this is the principal repaid at maturity.The coupon rate determines the interest payment.Interest is usually paid semiannually.The coupon rate can be zero.Interest payments are calle

27、d “coupon payments”.Bond Characteristics13-40第40頁(yè)，共72頁(yè)。U.S. Treasury BondsBonds and notes may be purchased directly from the Treasury.Denomination can be as small as $100, but $1,000 is more common.Bid price of 100:08 means 100 8/32 or $1002.50Note maturity is 1-10 yearsBond maturity is 10-30 years1

28、3-41第41頁(yè)，共72頁(yè)。Corporate BondsCallable bonds can be repurchased before the maturity date.Convertible bonds can be exchanged for shares of the firms common stock.Puttable bonds give the bondholder the option to retire or extend the bond.Floating rate bonds have an adjustable coupon rate13-42第42頁(yè)，共72頁(yè)。

29、Preferred StockDividends are paid in perpetuity.Nonpayment of dividends does not mean bankruptcy.Preferred dividends are paid before common.No tax break.EquityFixed income13-43第43頁(yè)，共72頁(yè)。Innovation in the Bond MarketInverse FloatersAsset-Backed BondsCatastrophe BondsIndexed BondsTreasury Inflation Pr

30、otected Securities (TIPS).13-44第44頁(yè)，共72頁(yè)。Table 14.1 Principal and Interest Payments for a Treasury Inflation Protected Security13-45第45頁(yè)，共72頁(yè)。PB =Price of the bondCt = interest or coupon paymentsT = number of periods to maturity r = semi-annual discount rate or the semi-annual yield to maturityBond

31、Pricing13-46第46頁(yè)，共72頁(yè)。Price of a 30 year, 8% coupon bond.Market rate of interest is 10%. Example 14.2: Bond Pricing13-47第47頁(yè)，共72頁(yè)。Prices and yields (required rates of return) have an inverse relationshipThe bond price curve (Figure 14.3) is convex.The longer the maturity, the more sensitive the bond

32、s price to changes in market interest rates.Bond Prices and Yields13-48第48頁(yè)，共72頁(yè)。Figure 14.3 The Inverse Relationship Between Bond Prices and Yields13-49第49頁(yè)，共72頁(yè)。Table 14.2 Bond Prices at Different Interest Rates13-50第50頁(yè)，共72頁(yè)。Yield to MaturityInterest rate that makes the present value of the bonds

33、 payments equal to its price is the YTM.Solve the bond formula for r13-51第51頁(yè)，共72頁(yè)。Yield to Maturity ExampleSuppose an 8% coupon, 30 year bond is selling for $1276.76. What is its average rate of return?r = 3% per half yearBond equivalent yield = 6%EAR = (1.03)2)-1=6.09%13-52第52頁(yè)，共72頁(yè)。YTM vs. Curren

34、t YieldYTMThe YTM is the bonds internal rate of return.YTM is the interest rate that makes the present value of a bonds payments equal to its price.YTM assumes that all bond coupons can be reinvested at the YTM rate.Current YieldThe current yield is the bonds annual coupon payment divided by the bon

35、d price.For bonds selling at a premium, coupon rate current yieldYTM.For discount bonds, relationships are reversed.13-53第53頁(yè)，共72頁(yè)。Yield to CallIf interest rates fall, price of straight bond can rise considerably.The price of the callable bond is flat over a range of low interest rates because the r

36、isk of repurchase or call is high.When interest rates are high, the risk of call is negligible and the values of the straight and the callable bond converge.13-54第54頁(yè)，共72頁(yè)。Figure 14.4 Bond Prices: Callable and Straight Debt13-55第55頁(yè)，共72頁(yè)。Realized Yield versus YTMReinvestment AssumptionsHolding Perio

37、d ReturnChanges in rates affect returnsReinvestment of coupon paymentsChange in price of the bond13-56第56頁(yè)，共72頁(yè)。Figure 14.5 Growth of Invested Funds13-57第57頁(yè)，共72頁(yè)。Figure 14.6 Prices over Time of 30-Year Maturity, 6.5% Coupon Bonds13-58第58頁(yè)，共72頁(yè)。YTM vs. HPRYTMYTM is the average return if the bond is

38、held to maturity.YTM depends on coupon rate, maturity, and par value.All of these are readily observable.HPRHPR is the rate of return over a particular investment period.HPR depends on the bonds price at the end of the holding period, an unknown future value.HPR can only be forecasted.13-59第59頁(yè)，共72頁(yè)

39、。Figure 14.7 The Price of a 30-Year Zero-Coupon Bond over Time13-60第60頁(yè)，共72頁(yè)。Rating companies:Moodys Investor Service, Standard & Poors, FitchRating CategoriesHighest rating is AAA or AaaInvestment grade bonds are rated BBB or Baa and aboveSpeculative grade/junk bonds have ratings below BBB or Baa.

40、Default Risk and Bond Pricing13-61第61頁(yè)，共72頁(yè)。Coverage ratiosLeverage ratiosLiquidity ratiosProfitability ratiosCash flow to debtFactors Used by Rating Companies13-62第62頁(yè)，共72頁(yè)。Table 14.3 Financial Ratios and Default Risk by Rating Class, Long-Term Debt13-63第63頁(yè)，共72頁(yè)。Figure 14.9 Discriminant Analysis13

41、-64第64頁(yè)，共72頁(yè)。Sinking funds a way to call bonds earlySubordination of future debt restrict additional borrowingDividend restrictions force firm to retain assets rather than paying them out to shareholdersCollateral a particular asset bondholders receive if the firm defaultsProtection Against Default13-65第65頁(yè)，共72頁(yè)。Default Risk and YieldThe risk st