Investment Valuation and Asset Pricing: Models and Methods

✍ Scribed by James W. Kolari, Seppo Pynnönen

• Publisher: Palgrave Macmillan
• Year: 2023
• Tongue: English
• Leaves: 247
• Category: Library

✦ Synopsis

This textbook is intended to fill a gap in undergraduate finance curriculums by providing an asset pricing text that is accessible for undergraduate finance students. It offers an overview of original works on foundational asset pricing studies that follows their historical publication chronologically throughout the text. Each chapter stays close to the original works of these major authors, including quotations, examples, graphical exhibits, and empirical results. Additionally, it includes statistical concepts and methods as applied to finance.  These statistical materials are crucial to learning asset pricing, which often applies statistical tests to evaluate different asset pricing models. It offers practical examples, questions, and problems to help students check their learning and better understand the fundamentals of asset pricing., alongside including PowerPoint slides and an instructor’s manual for professors.

✦ Table of Contents

Preface
References
Contents
List of Figures
List of Tables
1 Portfolio Theory and Practice
1.1 Ex Ante Valuation
1.2 Ex Post Returns and Risk
1.3 Summary
Questions
Problems
Appendix A: Optimal Weights for Two Securities
Appendix B: Optimal Weights for Many Assets
References
2 Capital Market Conditions
2.1 Perfect Capital Markets
2.2 Efficient Markets
2.3 Risk Aversion
2.4 Normally Distributed Returns
2.5 Summary
Questions
Problems
References
3 Capital Asset Pricing Model (CAPM)
3.1 The Present Value of Future Cash Flows
3.2 Market Equilibrium Assumptions
3.3 Investment Choice with a Riskless Asset
3.4 The CAPM
3.5 Implications of the CAPM
3.6 Summary
Questions
Problems
References
4 The Market Model
4.1 Empirical Form of the CAPM
4.2 Early Tests of the Market Model
4.2.1 Black, Jensen, and Scholes Study
4.2.2 Fama and MacBeth Study
4.3 Estimating the Market Model
4.4 A Primer on Regression Analysis
4.4.1 On the Interpretation of Regression Coefficients
4.4.2 Justification for OLS
4.5 OLS Estimation of the Market Model
4.5.1 Goodness-of-Fit
4.6 Summary
Questions
Problems
Appendix A: Statistical Inference
References
5 The Zero-Beta CAPM
5.1 Zero-Beta CAPM
5.1.1 Assumptions
5.1.2 Theoretical Model
5.2 Empirical Tests
5.3 Connection to Later Research
5.4 GRS Test for Portfolio Efficiency
5.5 Summary
Questions
Problems
Appendix A: Mathematical Derivation of the Zero-Beta CAPM
Appendix B: R Snippet for the GRS Testing Example in Section 5.4
References
6 Alternative CAPM Specifications
6.1 Intertemporal CAPM
6.2 International Asset Pricing Model (IAPM)
6.2.1 World Market Factor
6.2.2 Exchange Rate Risk
6.3 Consumption CAPM
6.4 Production CAPM
6.5 Conditional CAPM
6.6 Summary
Questions
Problems
References
7 The Arbitrage Pricing Theory Model
7.1 APT Model
7.1.1 Assumptions
7.1.2 Theoretical Model
7.2 Empirical Testing
7.3 Summary
Questions
Problems
References
8 Multifactor Models
8.1 What Explains Stock Returns?
8.2 Fama and French Three-Factor Model
8.3 Three-Factor Controversy
8.4 Summary
Questions
Problems
References
9 Anomalies and Multifactor Models
9.1 Carhart Four-Factor Model
9.2 Fama and French Four- and Five-Factor Models
9.3 Hou, Xue, and Zhang Four-Factor Model
9.4 Stambaugh and Yuan Four-Factor Model
9.5 Fama and French Six-Factor Model
9.6 Fama and French Cross-Section Factors
9.7 Lettau and Pelger Latent Five-Factor Model
9.8 Rise of the Machines
9.9 Summary
Questions
Problems
References
10 A Special Case of the Zero-Beta CAPM: The ZCAPM
10.1 Theoretical ZCAPM
10.2 Empirical ZCAPM
10.3 Empirical Evidence
10.3.1 Risk and Return Relations
10.3.2 Predicted and Actual Return Relations
10.3.3 Fama and MacBeth Cross-Sectional Tests
10.4 Summary
Questions
Problems
References
11 Event Studies
11.1 Short-Run Event Studies
11.1.1 Basic Steps in an Event Study
11.1.2 Abnormal Returns
11.1.3 Parametric Testing
11.1.4 Examples
11.2 Long-Run Event Studies
11.2.1 Buy-and-Hold Abnormal Return Approach
11.2.2 Calendar Time Abnormal Return Approach
11.2.3 Example
11.3 Summary
Questions
Problems
Appendix A: Nonparametric Testing
References
Index