Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other inves...

The demand for accurate models involving larger numbers of assets is strong not only in view of the financial crisis of 2007-2009. In particular dependencies among assets have not been captured adequately. While standard multivariate copulas have added some flexibility, this flexibility is insufficient in higher dimensional applications. Regular vines can fill this gap by benefiting from the ri...

A simple valuation model with time varying investment opportunities is developed and estimated. The model assumes that the investment opportunity set is completely described by the real interest rate and the maximum Sharpe ratio, which follow correlated Ornstein-Uhlenbeck processes. The model parameters and time series of the state variables are estimated using US Treasury bond yields and expec...

The constant relative risk aversion (CRRA) type utility functions are used in consumption-based capital asset pricing models (C-CAPM) and are estimated by the generalized method of moments (GMM). More realistic hyperbolic absolute risk aversion (HARA) utility functions are analytically inconvenient. We show how to estimate HARA-based CCAPM models by employing Godambe-Durbin \estimating function...

The present paper sets out to underline passive portfolio management on the Romanian capital market starting from the Capital Asset Pricing Model (CAPM) derived from the efficient market hypothesis, with no assumptions about the beliefs or preferences of investors. The efficient market hypothesis says that a speculator with limited resources cannot beat a particular index by a substantial facto...

This study is based on the rapid development of investment world. Hence, most investors have limited abilities and strategies in investing, therefore it takes important methods concepts to assess level profit from an with various existing risk factors. focuses comparison accuracy between Capital Asset Pricing Model (CAPM) Arbitrage Theory (APT) predicting stock returns LQ 45 index companies for...

This paper presents a closed-form solution to the portfolio optimization problem where an agent wishes to maximize expected terminal wealth, trading continuously between a risk-free bond and a risky stock following Stressed-Beta dynamics specified in Fouque and Tashman (2010). The agent has a finite horizon and a utility of the Constant Relative Risk Aversion type. The model for stock dynamics ...

In this paper we propose a new approach to estimating the systematic risk (the beta of an asset) in a capital asset pricing model (CAPM). The proposed method is based on a wavelet multiscaling approach that decomposes a given time series on a scale-by-scale basis. At each scale, the wavelet variance of the market return and the wavelet covariance between the market return and a portfolio are ca...