Market Liquidity and Linear Factor Pricing Models: Empirical Assessment and New Distribution-Free Tests Public

Gungor, Sermin (2010)

Permanent URL: https://etd.library.emory.edu/concern/etds/kp78gg470?locale=fr
Published

Abstract

An important problem of modern financial economics is understanding and quantifying the trade-off between risk and expected return. Although we anticipate the riskier assets to yield higher returns, the quantification of the risk-return trade-off was possible only after the introduction of the linear factor pricing models. Given the crucial role of these models in the asset pricing theory, this dissertation analyzes the linear factor pricing models from both financial economics and econometrics points of view. The first chapter examines the role of time-varying market liquidity in explaining the future asset returns using a conditional multifactor asset pricing framework. The second chapter develops exact distribution-free tests of unconditional mean-variance efficiency. The third chapter proposes a finite-sample procedure to test the beta-pricing representation of linear factor pricing models that is applicable even if the number of test assets is greater than the length of the time series.

Table of Contents

Preface

Essay 1: Time-Variation in Liquidity and Portfolio Returns

Abstract

1.1 Introduction

1.2 Theoretical Background

1.3 Data and Methodology

1.3.1 Aggregate Illiquidity Ratio

1.3.2 Aggregate Liquidity Innovations and Volatility

1.3.3 Time-Series Methodology

1.4 Empirical Results

1.4.1 The Unconditional Four-Factor Model

1.4.2 Innovations in Aggregate Liquidity, Volatility, and Expected Returns: Conditional Four-Factor Model

1.5 Conclusion

References

Essay 2: Exact Distribution-Free Tests of Mean-Variance Efficiency

Abstract

2.1 Introduction

2.2 Exact Parametric Tests

2.3 Building Blocks

2.4 Exact Distribution-Free Tests

2.4.1 Sup-type Tests

2.4.2 Sum-type Tests

2.4.3 Single-portfolio Tests

2.5 Simulation Results

2.6 Empirical Illustration

2.7 Conclusion

Appendix

References

Essay 3: Testing Linear Factor Pricing Models in Large Cross-Sections: A Distribution-Free Approach

Abstract

3.1 Introduction

3.2 Factor Structure

3.3 Test Procedure

3.3.1 Statistical Framework

3.3.2 Portfolio Formation

3.3.3 Confidence Sets

3.3.4 Summary of Test Procedure

3.4 Simulation Results

3.5 Empirical Application

3.5.1 10 Portfolios Formed on Size

3.5.2 25 Portfolios Formed on Size and Book-to-Market

3.5.3 100 Portfolios Formed on Size and Book-to-Market

3.5.4 Extreme Observations

3.6 Conclusion

References

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Market Liquidity and Linear Factor Pricing Models: Empirical Assessment and New Distribution-Free Tests () 2018-08-28 10:43:11 -0400

Supplemental Files

Thumbnail Title Date Uploaded Actions
Aggregate_Market_Return.pdf () 2018-08-28 10:47:13 -0400
Aggregate_Illiquidity_Ratio.pdf () 2018-08-28 10:48:21 -0400
DAY_ILLIQ.pdf () 2018-08-28 10:50:18 -0400
Weekly_unexpected_liqchanges.pdf () 2018-08-28 10:50:58 -0400
Monthly_unexpected_liqchanges.pdf () 2018-08-28 10:51:08 -0400
WEEK_ILLIQ.pdf () 2018-08-28 10:51:15 -0400
Daily_unexpected_liqchanges.pdf () 2018-08-28 10:51:24 -0400
MONTH_ILLIQ.pdf () 2018-08-28 10:51:33 -0400
figure1.pdf () 2018-08-28 10:51:40 -0400