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A study was conducted to examine the thoroughbred auction market, and to evaluate the effect of taxes on asset prices. Pricing models that have been published in economics and agri-business academic journals are used. Findings indicate that yearling prices are higher in the bonus period than in other periods.

Conventional models of economic behavior have failed to account for a number of observed empirical regularities in macroeconomics and international economics. This may be due to preference specifications in conventional models. In this paper, we consider preferences with the 'spirit of capitalism' (the desire to accumulate wealth as a way of acquiring status). We analyze a number of potential effects of international catching-up and the spirit of capitalism on savings, growth, portfolio allocation and asset pricing. Moreover, we obtain a multi-factor Capital Asset Pricing Model (CAPM). Our results show that status concerns have non-trivial effects on savings, growth, portfolio allocation, asset prices and the foreign exchange risk premium. JEL classification: F31; F43; G12 Keywords: International catching-up; Asset pricing; Exchange rates; Spirit of capitalism; Stochastic general equilibrium models

Usage of discrete-time model to find relationship between heterogeneous agents, such as fundamentalists and chartists, and asset prices, wealth dynamics is presented.

This paper shows that the quantitative predictions of an equilibrium asset-pricing model with financial frictions are consistent with key features of the Sudden Stop phenomenon. Foreign traders incur costs in trading assets with domestic agents, and a collateral constraint limits external debt to a fraction of the market value of domestic equity holdings. When this constraint does not bind, standard productivity shocks cause typical real-business-cycle effects. When it binds, the same shocks cause strikingly different effects depending on the leverage ratio and asset market liquidity. With high leverage and a liquid market, the shocks force 'fire sales' of assets and Fisher's debt-deflation mechanism amplifies the responses of asset prices, consumption and the current account. Precautionary saving makes these Sudden Stops infrequent in the long run. Keywords: Emerging markets; Sudden Stops; Collateral constraints; Margin calls; Trading costs; Asset-pricing; Fisherian debt-deflation JEL classification: F41; F32; E44; D52

Study of the basic macroeconomic fundamentals and asset returns in emerging market crises is presented.

The comparative statics on bull and bear market measure on equilibrium asset prices, by deriving the properties of the risk free rate and discounted prices of dividend monotone assets is discussed.

A study using time variation in conditional covariance between aggregate stock returns and aggregate consumption growth, for testing asset-pricing models, is presented.

A good monetary policy balances inflation and output, and maintains the interest rates at a stable level. An analysis of a situation where the asset prices are driven by irrational expectations of the financial markets is presented. Under such circumstances, the investments in markets become inefficient, which can defeat the very purpose of the monetary policy, forcing the central banks to take corrective measures.

Asset prices have built in components of present yields plus future real output growth or recessions. The resultant yield curve can be utilized for predicting recessions. A model for predicting future recession probabilities based on yield curve for a given length of business cycle is presented.

The two necessary conditions for behavioral finance that explains financial asset prices are examined. The empirical results of the analysis on put-call parity no-arbitrage relation in the options market in the context of short sales restrictions are presented.

A new method for evaluating the changes in asset prices based on monetary policy is presented. The effects of interest rates on stock prices and yield curves are also discussed.

A study on consumption based-asset pricing is presented. Comparison with capital asset pricing model is also presented. The study also examines the impact of idiosyncratic consumption risk.

The authors explore?two methods of determining net present value of North Sea oil well drilling.? Further research is recommended.

We derive closed-form solutions for asset prices in an RBC economy. The equations are based on a log-linear solution of the RBC model and allow a clearer understanding of the determination of risk premia in models with production. We demonstrate not only why the premium of equity over the risk-free rate is small but also why the premium of equity over a real long-term bond is small and often negative. In particular, risk premia for equity and long real bonds are negative when technology shocks are permanent.

The method here to price discretely monitored barrier options in both constant and time-varying volatility valuation frameworks uses a time-homogeneous Markov chain to approximate the underlying asset price process. It [...]

The authors amend portfolio theory to show that interest rate changes are a factor in mutual fund investment management. They also find achange in forward prices.

A semiparametric efficient estimation procedure is developed for the parameters of multivariate generalized autoregressive conditional heteroscedasticity-in-mean models when the disturbances have a conditional distribution assumed to be elliptically symmetric but [...]

This paper solves a model consisting of two monetary economies with incomplete markets, in which agents are subject to borrowing constraints. The paper investigates if such a framework is able to account for the volatility and the size of the foreign exchange risk premium. The model succeeds in increasing substantially the volatility of the risk premium to about 30% of that in the data. However, this more volatile risk premium does not translate into sufficiently large predictable excess returns. It thus appears unlikely that excess returns from currency speculation can be uniquely explained by a time-varying risk premium in an incomplete-markets economy with exogenous borrowing constraints. JEL classification: F31; G12; D52; D58 Keywords: Foreign exchange risk premium; Asset prices; Incomplete markets

This paper analyzes to what extent international and domestic asset pricing models lead to a different estimate of the cost of capital for an individual firm under the maintained assumption of perfect international financial integration. We distinguish between (i) the multifactor Solnik-Sercu ICAPM including both the global market portfolio and exchange rate risk premia, and (ii) the single factor domestic CAPM. We use a sample of 3,293 stocks from nine countries in the period 1980-1999. The domestic CAPM yields a significantly different estimate of the cost of capital from the multifactor ICAPM for only five percent of the firms in our sample. We attribute the close correspondence between local and global pricing to strong country factors in individual stock returns, which are probably due to lack of real integration. Our results reinforce the. home bias puzzle.

In this paper we develop some econometric theory for factor models of large dimensions. The focus is the determination of the number of factors (r), which is an unresolved issue in the rapidly growing literature on multifactor models. We first establish the convergence rate for the factor estimates that will allow for consistent estimation of r. We then propose some panel criteria and show that the number of factors can be consistently estimated using the criteria. The theory is developed under the framework of large cross-sections (N) and large time dimensions (T). No restriction is imposed on the relation between N and T. Simulations show that the proposed criteria have good finite sample properties in many configurations of the panel data encountered in practice. KEYWORDS: Factor analysis, asset pricing, principal components, model selection.

A survey of asset pricing emphasizing how theory interacts with empirical practice is presented. Stochastic discount factor (SDF) is used to price all assets in today's economy and is a key focus of modern economic research; its conditional mean is restricted by the behavior of interest-rate term structure, while its volatility and factor structure are controlled and restricted by risk premia patterns. New research tends to focus on behavioral finance as well as creating models of intertemporal equilibrium; the largest practical application is optimization of portfolio selection. Theorists develop economic models which can then be tested by empirical researchers through the documentation of stylized facts

In the paper we test the impact of the Japanese stock market on two financial asset groups, free and restricted shares, on the Finnish market in the early 90s. The causality is tested in the Granger sense. The research issue is particularly interesting, since the restrictions on foreign ownership were abolished by the end of 1992. The linkage between the Japanese and Finnish financial economies is seen to be stronger for free shares than for restricted. In particular, significant Granger causality between Japanese and Finnish free shares is observed at relatively long consecutive time intervals, whereas the Japanese impact on the restricted shares is only occasional. Thus, the decision to abolish the restrictions not only leads to increased international dependence in the future, but will also change the risk profile of the restricted shares. Key words - Granger causality, international asset pricing, restricted vs free shares

The attempt to compute full information maximum likelihood estimators of the non-linear asset pricing model has resulted in an Euler functional equation based algorithm that is more efficient than that of the moments estimator. The algorithm was evaluated with that of the moments estimator using Monte Carlo sampling experiments and results show that the method is more efficient than moments sampling when there is a significant amount of discrepancy in the aggregate output results.

In this article we generalize Harvey's (1989) empirical specification of conditional asset pricing models to allow for both time-varying covariances between stock returns and marketwide factors and time-varying reward-to-covariabilities. The model is then applied to examine the effects of firm size and book-to-market equity ratios. We find that the traditional asset pricing model with commonly used factors can only explain a small portion of the stock returns predicted by firm size and book-to-market equity ratios. The results indicate that allowing time-varying covariances and time-varying reward-to-covariabilities does little to salvage the traditional asset pricing models. (Reprinted by permission of the publisher.)

Models of price information in securities markets indicate that uninformed investors incur substantial illiquidity costs created by privately informed investors. This implies that relatively illiquid securities should have higher required rates of return. The link between stock returns and illiquidity is investigated using a wide variety of empirical methodologies from asset pricing and market microstructure research. The two variables are found to be significantly related after the impact of the stock price level is taken into account, and after the Fama and French (1193) factors are used to adjust for risk.

A model of asset markets with two types of investors is developed and examined to study the asset price dynamics. It is demonstrated that the introduction of simple heterogeneity of beliefs into a simple model of asset pricing generates a generous dynamic of asset returns. One type of investor may ultimately have a significantly greater wealth than the other investors, depending on the parameter values of the model. However, it is also possible for two types of investors to exist together on a long-term basis despite their influence on the asset turns.

The debate over the causes of financial instability could be partly solved by focusing on historical cases. In such cases, financial instability had its roots in innovation, such as the expansion into new markets. Such economic structural change raised hopes for increased profitability and spurred speculative activity. The lack of information, however, proved to be damaging as traders began a wild speculative spree until the inevitable financial distress happened.

Previous work shows that average returns on common stocks are related to firm characteristics like size, earnings/price, cash flow/price, book-to-market equity, past sales growth, long-term past return, and short-term past return. Because these patterns in average returns apparently are not explained by the CAPM, they are called anomalies. We find that, except for the continuation of short-term returns, the anomalies largely disappear in a three-factor model. Our results are consistent with rational ICAPM or APT asset pricing, but we also consider irrational pricing and data problems as possible explanations. (Reprinted by permission of the publisher.)

This article combines the continuous arrival of information with the infrequency of trades, and investigates the effects on asset price dynamics of positive and negative-feedback trading. Specifically, we model an economy where stocks and bonds are traded by two types of agents: speculators who maximize expected utility, and feedback traders who mechanically respond to price changes and infrequently submit market orders. We show that positive-feedback strategies increase the volatility of stock returns, and the response of stock prices to dividend news. Conversely, the presence of negative-feedback traders makes stock returns less volatile, and prices less responsive to dividends. (Reprinted by permission of the publisher.)

We develop a measure of public information flow to financial markets and use it to document the patterns of information arrival, with an emphasis on the intraday flows. The measure is the number of news releases by Reuter's News Service per unit of time. We find that public information arrival is nonconstant, displaying seasonalities and distinct intraday patterns. Next we relate our measure of public information to aggregate measures of intraday market activity. Our results suggest a positive, moderate relationship between public information and trading volume, but an insignificant relationship with price volatility. (Reprinted by permission of the publisher.)

This article derives testable restrictions on equilibrium asset prices when investors have the option to time the realization of their capital gains and losses for tax purposes. The tax-timing option alters both the magnitude and timing of equity returns relative to those in a tax-free model. The tax-induced restrictions are empirically examined, and the tax rates and preference parameters are estimated. While the tax-free model can be rejected in favor of the tax-based model as the specified alternative, the tax-based model is still unable to adequately explain cross-sectional differences in asset returns. (Reprinted by permission of the publisher.)

This paper uses the betting market for professional basketball games to address the issue of unexplained asset price volatility. A pricing model is presented which identifies two components in point spreads for professional basketball games. Both components - the market's estimate of relative team abilities and an idiosyncratic factor - are essentially unobserved, but can be identified ex post. The structure of this market enables tests of competing hypotheses about point spread variation. The tests reject the hypothesis that variation in the two components represents irrelevant noise. The hypothesis that unobserved fundamentals account for this variation is consistent with the data. (Reprinted by permission of the publisher.)

A study was conducted to examine a representative agent model's ability to quantify first and second order moments of the risk free rate and equity return. Standard calibration methodology is applied to set uncertainty conditions for both moments. Results show that the first moment can generate a range of preference parameter measures. However, both moments are not represented by statistical values which can approximate sample measures.

An analysis of the integrability problem associated with asset prices is presented. The analysis focuses on asset prices set in a discrete-time stochastic market which is described by concave utility function and a positive time preference rate. A modification ofthe given conditions which approaches opposite conditions including continuous time frames is then considered. It is shown that under the second environment, a non-decreasing and concabe utility function can be identified.

A study was conducted to examine the relation between observed asset returns and investor perception of asset risk. The study focuses on estimates of time-varying variance-covariance structures based on the generalized autoregressive conditional heteroskedasticity (GARCH) and vector autoregression (VAR) approach. Both methods show that changes in variance-covariance structures are conditioned by past information. In addition, predicted ex ante returns exhibit correlation to observed excess returns.

The Arbitrage Pricing Theory (APT) implies that if asset returns have a factor structure, then an appropriate multibeta representation holds with respect to the factors as reference variables. This paper assumes that asset returns satisfy a factor structure and derives a condition under which the approximate multibeta representation holds with respect to a set of reference variables which may not be the factors. This condition is that the regression matrix of the reference variables on the factors is nonsingular. Implications for the testability of the APT are also discussed. (Reprinted by permission of the publisher.)

Non-U.S. firms cross-listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, and an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing. Our tests provide support for the market segmentation hypothesis and Merton's (1987) investor recognition hypothesis. (Reprinted by permission of the publisher.)

Research into the properties of the two-pass cross-sectional regression when the asset pricing model is misspecified indicates that there is no justification for the view that, when a useless factor is used in testing an asset pricing model, the assumption that its risk premium is zero would only be rejected with a low probability as shown by the size of the test. It was established that in a finite sample, the beta risk linked with a useless factor is priced more often than the size of the test. It appears that the t-test rejects the zero risk premium for a useless factor with a probability of more than twice the size of the test for a typical length of time series.