THE SPIRIT OF CAPITALISM, NON-EXPECTEDUTILITY AND ASSET PRICING

This paper investigates testable restrictions on the time-series behavior of consumption and asset returns implied by a representative agent model with the spirit of capitalism in which intertemporal preference is represented by a utility function that generalizes conventional, time-additive, expected utility. In the recursive structure of preference, the author examines the implication for cosumptions, portfolio holdings, and stock-market prices when investors accumulate wealth not only for the sake of consumption but also for wealth-induced social status. When investors care about relative social status, the propensity to consume and risk-taking behavior will depend on social standards, and stock prices will be volatible. Hence, the spirit of capitalism seems to be a driving force behind stock-market volatility and economic growth. Because the elasticity df substitution and the coefficient of relative risk aversion are independent and the spirit of capitalism is introduced, the equity premium puzzle can be partially explained in the model.

A new test on the conditional capital asset pricing model

Testing the validity of the conditional capital asset pricing model （CAPM） is a puzzle in the finance literature. Lewellen and Nagel[14] find that the variation in betas and in the equity premium would have to be implausibly large to explain important asset-pricing anomalies. Unfortunately, they do not provide a rigorous test statistic. Based on a simulation study, the method proposed in Lewellen and Nagel[14] tends to reject the null too frequently. We develop a new test procedure and derive its limiting distribution under the null hypothesis. Also, we provide a Bootstrap approach to the testing procedure to gain a good finite sample performance. Both simulations and empirical studies show that our test is necessary for making correct inferences with the conditional CAPM.

Interest rate swap pricing with default risk under variance gamma process

Under the assumption that the dynamic assets price follows the variance gamma process, we establish a new bilateral pricing model of interest rate swap by integrating the reduced form model for swap pricing and the structural model for default risk measurement.Our pricing model preserves the simplicity of the reduced form model and also considers the dynamic evolution of the counterparty assets price by incorporating with the structural model for default risk measurement. We divide the swap pricing framework into two parts, simplifying the pricing model relatively. Simulation results show that, for a one year interest rate swap, a bond spread of one hundred basis points implies a swap credit spread about 0.1054 basis point.

The Q theory of investment, the capital asset pricing model,and asset valuation： a synthesis

The paper combines Tobin's Q theory of real investment with the capital asset pricing model to produce a new and relatively simple procedure for the valuation of real assets using the income approach. Applications of the new method are provided.

International Financial Market＇s Integration and Modelling Returns of Risky Assets

The aim of this paper is to test the ability of conditional and unconditional capital asset pricing models （CAPMs） and to explain emerging markets returns in terms of their integration into the international market. The authors use data on five developed countries and five emerging countries as well as data on the Tunis Stock Exchange （TSE） after the reforms. The results show that the correlations between emerging markets returns and developed markets returns are very low and sometimes negative. Conditional arbitrage pricing theory （APT） as well as conditional CAPM has low predictive power for emerging markets than that for developed markets. Finally, following the financial reforms, Tunisian financial markets have became more and more integrated into the international market （excess returns and unconditional beta consistent with predictions）. However, conditional APT does not accurately explain Tunisian market returns. This study confirms the unavailability of an accurate modelling technique of the TSE structure.

Pricing factors in capital market and investment strategy： Evidence from Chinese listed companies

This paper explores the performances of some frequently used asset pricing factors and their investment implications in Chinese stock market. It is noted that CAPM model can hardly be applied to Chinese market as portfolios based on 13 values cannot generate high return against high risk. However, two factors （Size and B/M） from Fama-French model （1992） deliver better performances. Such findings indicate that models based on theoretical analysis are somewhat away from practice, and those risk factors from empirical studies are more applicable though not based on theories. Therefore, further researches are desirable concerning asset pricing factors.

Empirical Asset Pricing-- Saudi Stylized Facts and Evidence

This paper estimates proxy specifications of a five-factor asset pricing model to produce stylized facts of the Saudi capital market and test an arbitrage pricing theory （APT） model. The data set is the panel of 20 most actively traded firms, excluding firms with negative book value of equity. The contribution to the extant literature is three-fold： （l） organizing Saudi market data based on beta and firm-specific fundamentals, namely, growth, value, accounting earnings, and equity investments; （2） conducting a parsimony analysis within the theoretical framework of APT; and （3） quantifying the information risk facing the marginal investor by decomposing earnings into cash flows and accruals and investigating respective loadings in an unrestricted version of the parsimonious specification. Proxy asset pricing specifications, though intuitively appealing, are scant due to lack of theoretical frameworks and misguided significance tests of factor loadings. Throughout, this issue is addressed by keeping the empirical analysis under describing market facts and testing an APT model. The study concludes with a significant empirical explanation that specifies average returns in terms of the covariance risk and accounting accruals.

Some Financial Problems in the Light of EMM Results:Asset Pricing and Efficient Portfolio Allocation

Discussing results in asset pricing and efficient portfolio allocation,we show that mixed success and errors in these results often follow from a lack of information about the asset return distribution and wrong assumptions about its properties.Some mistakes in asset pricing come from the assumption of symmetry in return distributions.Some errors in efficient portfolio allocation follow from Markowitz’s approach when applying it to portfolio optimization of skewed asset returns.The Extended Merton model(EMM),generating skewed return distributions,demonstrates that(i)in skewed asset returns,the variance is not an adequate measure of risks and(ii)positive skewness in the asset returns comes together with a high default probability.Thus,the maximization of the mean portfolio returns and skewness with controlled variance used in mainstream papers can critically increase portfolio risks.We present the new settings of the optimal portfolio allocation problem leading to less risky efficient portfolios than the solutions suggested in all previous papers.

An impact assessment of the COVID‑19 pandemic on Japanese and US hotel stocks

This study proposes two new regime-switching volatility models to empirically analyze the impact of the COVID-19 pandemic on hotel stock prices in Japan compared with the US,taking into account the role of stock markets.The first model is a direct impact model of COVID-19 on hotel stock prices;the analysis finds that infection speed negatively affects Japanese hotel stock prices and shows that the regime continues to switch to high volatility in prices due to COVID-19 until September 2021,unlike US stock prices.The second model is a hybrid model with COVID-19 and stock market impacts on the hotel stock prices,which can remove the market impacts on regime-switching volatility;this analysis demonstrates that COVID-19 negatively affects hotel stock prices regardless of whether they are in Japan or the US.We also observe a transition to a high-volatility regime in hotel stock prices due to COVID-19 until around summer 2021 in both Japan and the US.These results suggest that COVID-19 is likely to affect hotel stock prices in general,except for the influence of the stock market.Considering the market influence,COVID-19 directly and/or indirectly affects Japanese hotel stocks through the Japanese stock market,and US hotel stocks have limited impacts from COVID-19 owing to the offset between the influence on hotel stocks and no effect on the stock market.Based on the results,investors and portfolio managers should be aware that the impact of COVID-19 on hotel stock returns depends on the balance between the direct and indirect effects,and varies from country to country and region to region.

Information-based approach:Pricing of a credit risky asset in the presence of default time

We extend the information-based asset-pricing framework by Brody,Hughston&Macrina to incorporate a stochastic bankruptcy time for the writer of the asset.Our model introduces a non-defaultable cash flow Zr to be made at time T,alongside the time T of a possible bankruptcy of the writer of the asset are in line with the filtration generated by a Brownian random bridge with length v=T^T and pinning point ZT,where is a constant.Quantities Z and T are not necessarily independent.The model does not depend crucially on the interpretation of as a bankruptcy time.We derived the price process of the asset and compute the prices of associated options.The dynamics of the price process satisfy a diffusion equation.Employing the approach of P.-A.Meyer,we provide the explicit computation of the compensator of v.Leveraging special properties of the bridge process,we also provide the explicit expression of the compensator of Zr I(v,+o).The resulting conclusion highlights the totally inaccessible property of the stopping time v.This characteristic is particularly suitable for financial markets where the time of default of a writer cannot be predictable from any other signal in the system until default happens.

Does the EVA valuation model explain the market value of equity better under changing required return than constant required return?

Through the Economic-Value-Added(EVA)valuation model,the expected market value of equity can be determined by adding the book value of equity with the present value of expected EVAs under the assumption of constant required return and constant return on equity.The equation of EVA valuation model has taken its shape under the assumption of constant required return and constant return on equity.However,a large body of empirical evidence indicates that required rate of return never remain constant.The EVA-valuation model formulated under constant required return cannot be implemented under the scenario of changing required return.In this study,we explored whether the EVA valuation model could be implemented under changing required return by making any changes in the model and found that it could be implemented under the scenario of changing required return by replacing the book value of the equity of the existing model with the present value of required earnings or normal market earnings.We further examined whether the explanatory ability of the EVA valuation model under the assumption of changing required return is better than that of the valuation model under the assumption of constant required return.Relative information content analyses were conducted by considering sample of the intrinsic value of equities determined by valuation models and the market value of equities of 69 large-cap,88 mid-cap,and 79 small-cap companies.The results showed that the EVA-based valuation model with changing normal market return outperformed the EVA-based valuation model with constant required return.

Simulation of game analysis based on an agent-based artificial stock market re-examined

This work re-examined the simulation result of game analysis (Joshi et al., 2000) based on an agent-based model, Santa Fe Institute Artificial Stock Market. Allowing for recent research work on this artificial model, this paper’s modified game simulations found that the dividend amplitude parameter is a crucial factor and that the original conclusion still holds in a not long period, but only when the dividend amplitude is large enough. Our explanation of this result is that the dividend amplitude pa- rameter is a measurement of market uncertainty. The greater the uncertainty, the greater the price volatility, and so is the risk of investing in the stock market. The greater the risk, the greater the advantage of including technical rules.

Contingent convertible lease modeling and credit risk management

The main objective of this study is to determine a lease agreement to finance an investment project and a solution for managing credit risk.This study investigates three types of contingent leases to reduce the costs associated with bankruptcy and compensate for the lessor’s position.A leasing defaultable contract allows the lessor to obtain the rent that will be recovered if the lessee defaults.A leasing convertible contract can be automatically converted into shares when certain default conditions related to the cash flows generated by the firm are met.These conditions are triggered by the ratio of the firm’s value and leasing payments.A Defaultable-Convertible-Leasing contract with a payback option grants the lessor the right but not the obligation to convert the remaining lease payments into stocks or to break up the contract and pick up the rented equipment when the firm reaches the default threshold.These contracts are motivated by contributing to the range of risk-management strategies by adding more flexibility to standard leasing contracts and contingent rents.Closed-form securities pricing solutions are set forward in a dynamic model for firms with existing assets and a growth option financed by shares and a contingent lease.Risk-neutral pricing theory and the backward induction method are used to determine the pricing of corporate securities.Numerical analysis shows that leasing convertible contracts and defaultable-convertible contracts with payback options impact the service value of the leased asset,maturity,and inefficiencies resulting from insolvency and asset substitution.An optimal conversion rate reduces inefficiencies,thus making the leasing convertible contract and defaultable-convertible-leasing contract with payback option a reliable solution to ensure business continuity and loss coverage of the leasers upon default.

Empirical analysis on risk of security investment

The paper analyzes the theory and application of Markowitz Mean-Variance Model and CAPM model. Firstly, it explains the development process and standpoints of two models and deduces the whole process in detail. Then 30 stocks are choosen from Shangzheng 50 stocks and are testified whether the prices of Shanghai stocks conform to the two models. With the technique of time series and panel data analysis, the research on the stock risk and effective portfolio by ORIGIN and MATLAB software is conducted. The result shows that Shanghai stock market conforms to Markowitz Mean-Variance Model to a certain extent and can give investors reliable suggestion to gain higher return, but there is no positive relation between system risk and profit ratio and CAPM doesn＇t function well in China＇s security market.

An Intertemporal General Equilibrium Model of Asset Prices with Labor Input

This paper develops the CIR model. In this model, labor is introduced in the production function and leisure in the direct utility function. We examine how the trade-off between labor and leisure would affect asset prices and derive a familiar principal partial differential equation which asset prices must satisfy. The solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in economy.

Can news-based economic sentiment predict bubbles in precious metal markets?

This study examines the role of market sentiment in predicting the price bubbles of four strategic metal commodities(gold,silver,palladium,and platinum)from January 1985 to August 2020.It is the first to investigate this topic using sentiment indices,including news-based economic and consumer-based sentiments developed using different methods.We observed the role of sentiment as a reliable indicator of future bubbles for some metal commodities and found that bubbles were regularly concomi-tant with bearish sentiments for gold and platinum.Moreover,gold and palladium were the only commodities that experienced a bubble during the COVID-19 pandemic.Overall,our findings suggest inclusion of sentiment to the model that predicts the price bubbles of precious metals.

Discount Rate of China’s New Energy Power Industry

Under the dual pressures of energy crisis and environmental pollution,China’s new energy power industry has become a focal point for environmental management and requires greater investment.In this context,as a significant input of investment projects,discount rate requires a well-calibrated evaluation because new energy power investment projects are highly capital intensive.The main objective of this paper is to evaluate the discount rate of China’s new energy power industry.First,we use Moving Average to correct the parameters of capital asset pricing model(CAPM)and weighted average cost of capital,which extends the literature on the avoidance of CAPM noise information problem.Second,we study the industry-level annual discount rates of mainly China’s new energy power industries,including hydropower,nuclear power,wind power,and photovoltaic power industries for the period of 2014-2019.The results show that discount rates in China’s new energy power industries evolved differently between the years of 2014-2019 with average annual discount rates being 7.56%,5.83%,5.60%,and 8.64%,for the hydropower,nuclear power,wind power,and photovoltaic power industries,respectively.In 2019,the four annual discount rates were highest for the photovoltaic power industry(8.66%),followed by hydropower(7.17%),wind power(5.72%),and nuclear power industry(5.26%).Forecasting to 2020 from the 2019 evaluation base period,the discount rates are 6.37%,5.00%,6.57%,and 9.05%for the photovoltaic power,hydropower,wind power,and nuclear power industries,respectively.Under the different capital structures,their forecasts for the photovoltaic power,hydropower,wind power,and nuclear power industries in 2020 are,respectively,within[4.35%,9.24%],[3.92%,7.10%],[4.58%,10.40%],[5.46%,14.81%].We also discussed more details on capital structure and forecast period of discount rates for China’s new energy power industries.Our analysis shows that it is necessary to establish a new energy power industry database and steadily promote the implementation of policies.

A Theoretical Examination of Untaxed Entities and Taxed Entities in the Market for Commercial Real Estate

This paper is a theoretical examination of untaxed and taxed entities that invest in real estate. The standard advice to real estate investors is to avoid using entities that are subject to taxation （such as C corporations） and employ entities that are not subject to taxation （such as limited liability companies, S corporations, and real estate investment trusts） in order to avoid double taxation of income. This paper shows that, in most situations, untaxed entities place a greater value on a given real estate property than a taxed entity does, which implies that taxed entities are at a distinct disadvantage at competing in the market for property. However, this conclusion is reversed if untaxed entities use a large amount of financial leverage compared to taxed entities and the borrowing rate for both is greater than the risk-free rate.

Implications of Fama-French Models and Critical Evaluation of Cost of Equity Approach in Explanation of Variations in Expected Stock Returns

CAPM theory that solves relationship between asset return and asset risk for potential investment project by CML and SML,is illustrated in the first section as an introduction of further analysis of corporate valuation techniques.Fama and French three factor model is perceived as a revision of CAPM,although it stills has severe weaknesses.CAPM theory solves relationship between asset return and asset risk for potential investment project by CML and SML.

Noise, Asset Prices, and Bubbles

The paper asserts that the misperceptions of noise traders are a behavioral bias characterized by overreactions. By introducing the overreaction coefficient, we provide an explanation for the volatility of asset prices and bubbles in a simplified framework that is similar to the DSSW （1990a） model. When the underlying asset is involved with a fundamental shock, noise traders will generally overreact to it, which creates an ＂overreaction risk＂. This kind of risk will make the asset prices more volatile, and even make up asset bubbles. Therefore, asset bubbles can be regarded as a psychological phenomenon, and are actually the results of the psychological changing process of noise traders.