Handbook of the Economics of Finance

The Conditional CAPM Does Not Explain Asset-Pricing Anomalies

MR. KEYNES'S “Treatise on Money”, the fruit of his study and reflection up to date on the part played by currency and credit in contemporary civilisation, is the most important work on monetary theory published since the War, certainly in England and probably throughout the world. Its two volumes, entitled respectively “The Pure Theory of Money” and “The Applied Theory of Money”, are divided into seven books. The first book is concerned with essential definitions; the second investigates what the value of money really means, and how its fluctuations may best be measured; the third and fourth books—which contain the heart of Mr. Keynes's theory—deal with the factors which determine the value of money and the dynamics of changing price-levels; the fifth and sixth are taken up with a study of the statistical and non-statistical data bearing on changes in the quantity of money and its velocity of circulation, in the volume of production and trade, and in the rate of investment; while the seventh and last book contains Mr. Keynes's proposals for the practical reforms which he would like to see the ultimate monetary authorities of the world adopt in order to achieve the objectives at which, in his opinion, monetary policy should aim. A Treatise, on Money. John Maynard Keynes. Vol. I: The Pure Theory of Money. Pp. xvii + 363. Vol. 2: The Applied Theory of Money. Pp. viii + 424. (London: Macmillan and Co., Ltd., 1930.) 15s. net each vol.

A Treatise, on Money

We investigate whether investor sentiment affects the cross-section of stock returns in China A-share market.The evidence shows that the sensitivity of stock returns to sentiment changes is different. When an index of investor sentiment takes high values,low tangible assets,high Debt-asset ratio,and non-dividend-paying stocks earn relatively higher returns,when sentiment is low,the aforementioned categories of stocks earn relatively lower returns.When sentiment is high,low-price,unprofitable and high book-market ratio stocks earn relatively higher returns and vice versa,but which is insignificant.The capitalization, volatility and institutional ownership appear to have no significant cross-section effect of investor sentiment on its characteristic Portfolio return.

Investor Sentiment and the Cross-Section of Stock Returns

We provide a model-free test for asymmetric correlations in which stocks move more often with the market when the market goes down than when it goes up, and also provide such tests for asymmetric betas and covariances. When stocks are sorted by size, book-to-market, and momentum, we find strong evidence of asymmetries for both size and momentum portfolios, but no evidence for book-to-market portfolios. Moreover, we evaluate the economic significance of incorporating asymmetries into investment decisions, and find that they can be of substantial economic importance for an investor with a disappointment aversion (DA) preference as described by Ang, Bekaert, and Liu (2005). , Oxford University Press. (This abstract was borrowed from another version of this item.)

Asymmetries in Stock Returns: Statistical Tests and Economic Evaluation

Theoretically, the implied cost of capital (ICC) is a good proxy for time-varying expected returns. We find that aggregate ICC strongly predicts future excess market returns at horizons ranging from one month to four years. This predictive power persists even in the presence of popular valuation ratios and business cycle variables, both in-sample and out-of-sample, and is robust to alternative implementations. We also find that ICCs of size and B/M portfolios predict corresponding portfolioreturns.

/pdf/predicting-market-returns-using-aggregate-implied-cost-of-3xr1aibcvc.pdf

Predicting Market Returns Using Aggregate Implied Cost of Capital

We build a general equilibrium model to examine the implications of prospect theory for the disposition effect, asset prices, and trading volume. Diminishing sensitivity predicts a disposition effect, price momentum, a reduced return volatility, and a positive return-volume correlation. Loss aversion generally predicts the opposite. In calibrated economies, there is a nontrivial range of preference parameters for prospect theory to simultaneously explain the disposition effect, the momentum effect, and the equity premium puzzle. Our model is helpful for understanding a wide range of financial phenomena and it also suggests new testable predictions.

Prospect Theory, the Disposition Effect, and Asset Prices

https://lsvasset.com/pdf/research-papers/LNS_agg_March2013.pdf

Predicting market returns using aggregate implied cost of capital

We analyze a model where traders have different trading opportunities and learn information from prices The difference in trading opportunities implies that different traders may have different trading motives when trading in the same market -- some trade for speculation and others for hedging -- and thus they may respond to the same information in opposite directions This implies that adding more informed traders may reduce price informativeness and therefore provides a source for learning complementarities leading to multiple equilibria and price jumps Our model is relevant to various realistic settings and helps to understand a variety of modern financial markets

/pdf/speculation-and-hedging-in-segmented-markets-437y73mnr8.pdf

Yan Li

Papers

Predicting Market Returns Using Aggregate Implied Cost of Capital

Prospect Theory, the Disposition Effect, and Asset Prices

Predicting market returns using aggregate implied cost of capital

Speculation and Hedging in Segmented Markets

Prospect theory, the disposition effect, and asset prices