1、INVESTMENTS | BODIE, KANE, MARCUS Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 13 Empirical Evidence on Security Returns INVESTMENTS | BODIE, KANE, MARCUS Overview of Investigation Return-beta relationships are widely used in actual financial pract
2、ice. The CAPM predicts expected rates of return on assets, relative to a market portfolio of all risky assets. INVESTMENTS | BODIE, KANE, MARCUS Overview of Investigation A multifactor capital market usually is postulated. A broad market index (e.g. the S&P 500) represents one of the factors. Well d
3、iversified portfolios are often substituted for individual securities. To overcome CAPM testing difficulties: INVESTMENTS | BODIE, KANE, MARCUS The Index Model and the Single-Factor APT Expected Return-Beta Relationship Estimating the SCL fMifi rrErrE itftMtiiftit errbrr INVESTMENTS | BODIE, KANE, M
4、ARCUS Tests of the CAPM Tests of the expected return beta relationship: First Pass Regression Estimate beta, average risk premiums and nonsystematic risk Second Pass Use estimates from the first pass to see if model is supported by the data SML slope is “too flat” and intercept is “too high”. INVEST
5、MENTS | BODIE, KANE, MARCUS Single Factor Test Results Return % Beta CAPM Estimated SML INVESTMENTS | BODIE, KANE, MARCUS Rolls Criticism The only testable hypothesis is whether the market portfolio is mean-variance efficient. Sample betas conform to the SML relationship because all samples contain
6、an infinite 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 M INVESTMENTS | BODIE, KANE, MARCUS Measurement Error in Beta Problem: If beta is measur
7、ed with error, then the slope coefficient 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 MacBeth INVESTMENTS | BODIE, KANE, MARCUS T
8、able 13.1 Summary of Fama and MacBeth INVESTMENTS | BODIE, KANE, MARCUS Summary of CAPM Tests 1. Expected rates of return are linear and increase with beta, the measure of systematic risk. 2. Expected rates of return are not affected by nonsystematic risk. INVESTMENTS | BODIE, KANE, MARCUS Human Cap
9、ital and Cyclical Variations in Asset Betas Jagannathan and Wang study shows two important deficiencies in tests of the single-index model: 1. Many assets are not traded, notably, human capital. A human capital factor may be important in explaining returns. 2. Betas are cyclical. INVESTMENTS | BODIE
10、, KANE, MARCUS Table 13.2 Evaluation of Various CAPM Specifications INVESTMENTS | BODIE, KANE, MARCUS Table 13.3 Determinants of Stockholdings INVESTMENTS | BODIE, KANE, MARCUS Tests of the Multifactor Model Which factors or sources of risk should have risk premiums? CAPM and APT do not tell us! INV
11、ESTMENTS | BODIE, KANE, MARCUS Tests of the Multifactor Model Chen, Roll and Ross 1986 Study Factors Growth rate in industrial production Changes in expected inflation Unexpected inflation Unexpected changes in risk premiums on bonds Unexpected changes in term premium on bonds INVESTMENTS | BODIE, K
12、ANE, MARCUS Study Structure & Results Method: Two-stage regression with portfolios constructed by size based on market value of equity Significant factors: industrial production, risk premium on bonds and unanticipated inflation Market index returns were not statistically significant in the multifac
13、tor model INVESTMENTS | BODIE, KANE, MARCUS Fama-French Three Factor Model Size 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 explained by size, book to market and by be
14、ta. INVESTMENTS | BODIE, KANE, MARCUS Interpretation of Three-Factor Model Size and value are priced risk factors, consistent with APT. Alternatively, premiums could be due to investor irrationality or behavioral biases. INVESTMENTS | BODIE, KANE, MARCUS Risk-Based Interpretations Liew and Vassalou
15、Style seems to predict GDP growth and relate to the business cycle. Petkova and Zhang When the economy is expanding, value beta growth beta INVESTMENTS | BODIE, KANE, MARCUS Figure 13.1 Difference in Return to Factor Portfolios INVESTMENTS | BODIE, KANE, MARCUS Figure 13.2 HML Beta in Different Econ
16、omic States INVESTMENTS | BODIE, KANE, MARCUS Behavioral Explanations 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
17、and Lakonishok LaPorta, Lakonishok, Shleifer and Vishny INVESTMENTS | BODIE, KANE, MARCUS Figure 13.3 The Book-to-Market Ratio INVESTMENTS | BODIE, KANE, MARCUS Figure 13.4 Value minus Glamour Returns Surrounding Earnings Announcements INVESTMENTS | BODIE, KANE, MARCUS Momentum: A Fourth Factor The
18、original Fama-French model augmented with a momentum factor has become a common four-factor model used to evaluate abnormal performance of a stock portfolio. Momentum may be related to liquidity. INVESTMENTS | BODIE, KANE, MARCUS Liquidity and Asset Pricing Liquidity involves trading costs, ease of
19、sale, necessary price concessions to effect a quick transaction, market depth, price predictability. INVESTMENTS | BODIE, KANE, MARCUS Liquidity and Asset Pricing Pstor and Stambaugh studied price reversals. Conclusion: Liquidity risk is a priced factor. Price reversals may occur when traders have t
20、o offer higher purchase prices or accept lower selling prices to complete their trades in a timely manner. INVESTMENTS | BODIE, KANE, MARCUS Liquidity and Efficient Market Anomalies Pstor and Stambaugh suggest that the liquidity risk factor may account for the profitability of the momentum strategy.
21、 Sadka shows that the liquidity risk premium explains 40-80% of the abnormal returns to the momentum and postearnings announcement drift strategies. INVESTMENTS | BODIE, KANE, MARCUS Equity Premium Puzzle The equity premium puzzle says : historical excess returns are too high and/or our usual estima
22、tes of risk aversion are too low. INVESTMENTS | BODIE, KANE, MARCUS Consumption Growth and Market Rates of Return What matters to investors is not their wealth per se, but their lifetime flow of consumption. Measure risk as the covariance of returns with aggregate consumption. INVESTMENTS | BODIE, K
23、ANE, MARCUS Consumption Growth and Market Rates of Return The lower panel of Table 13.6 shows: a high book-to-market ratio is associated with a higher consumption beta larger firm size is associated with a lower consumption beta. INVESTMENTS | BODIE, KANE, MARCUS Table 13.6 Annual Excess Returns and
24、 Consumption Betas INVESTMENTS | BODIE, KANE, MARCUS Figure 13.6 Cross-Section of Stock Returns: Fama-French 25 Portfolios, 1954-2003 INVESTMENTS | BODIE, KANE, MARCUS Expected versus Realized Returns Fama and French Found an equity premium only after 1949 Capital gains significantly exceeded the di
25、vidend growth rate in modern times. Equity premium may be due to unanticipated capital gains. INVESTMENTS | BODIE, KANE, MARCUS Survivorship Bias Estimating risk premiums from the most successful country and ignoring evidence from stock markets that did not survive for the full sample period will im
26、part an upward bias in estimates of expected returns. The high realized equity premium obtained for the United States may not be indicative of required returns. INVESTMENTS | BODIE, KANE, MARCUS Liquidity and the Equity Premium Puzzle Part of the equity premium is almost certainly compensation for l
27、iquidity risk rather than just the (systematic) volatility of returns. Ergo, the equity premium puzzle may be less of a puzzle than it first appears. INVESTMENTS | BODIE, KANE, MARCUS Behavioral Explanations of the Equity Premium Puzzle Barberis and Huang explain the puzzle as an outcome of irrational investor behavior. The premium is the result of narrow framing and loss aversion. Investors ignore low correlation of stocks with other forms of wealth Higher risk premiums result
