|
|
|
|
||||
|
||||
Covariances, Characteristics, and General Equilibrium: A CritiqueXiaoji LinOhio State University (OSU) - Fisher College of Business Lu ZhangOhio State University - Fisher College of Business; National Bureau of Economic Research (NBER) December 1, 2011 Fisher College of Business Working Paper No. 2011-03-015 Charles A. Dice Center Working Paper No. 2011-15 Abstract: We question a deep-ingrained doctrine in asset pricing: if an empirical characteristic-return relation is consistent with investor “rationality,” the relation must be “explained” by a risk factor model. The investment approach changes the big picture of asset pricing. Factors formed on characteristics are not necessarily risk factors: characteristics-based factor models can be linear approximations of firm-level investment returns. The evidence that characteristics dominate covariances in horse races does not necessarily mean mispricing: measurement errors in covariances are likely to blame. Most important, the investment approach completes the consumption approach in general equilibrium, especially for cross-sectional asset pricing.
Number of Pages in PDF File: 41 Keywords: covariances, characteristics, general equilibrium, asset pricing anomalies, capital markets research in accounting, market efficiency, investment-based asset pricing JEL Classification: D21, D92, E22, E44, G12, G14, G31, G32, G35 working papers seriesDate posted: July 22, 2011 ; Last revised: February 27, 2012Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo7 in 0.468 seconds
