Search Constraints

Filtering by: Creator Jagannathan, Ravi. Remove constraint Creator: Jagannathan, Ravi. Subject G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates Remove constraint Subject: G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates

Search Results

  • 2j62s486f?file=thumbnail
    Creator: Jagannathan, Ravi. and Wang, Zhenyu.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
    Number: 517
    Abstract: In empirical studies of the CAPM, it is commonly assumed that (a) the return to the value weighted portfolio of all stocks is a reasonable proxy for the return on the market portfolio of all assets in the economy, and (b) betas of assets remain constant over time. Under these assumptions, Fama and French (1992) find that the relation between average return and beta is flat. We argue that these two auxiliary assumptions are not reasonable. We demonstrate that when these assumptions are relaxed, the empirical support for the CAPM is surprisingly strong. When human capital is also included in measuring wealth, the CAPM is able to explain 28 percent of the cross sectional variation in average returns in the 100 portfolios studied by Fama and French. When, in addition, betas are allowed to vary over the business cycle, the CAPM is able to explain 57 percent. More important, relative size does not explain what is left unexplained after taking sampling errors into account.
    Keyword: Capital and Stock prices
    Subject: G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
  • Cv43nw822?file=thumbnail
    Creator: Jagannathan, Ravi. and Wang, Zhenyu.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
    Number: 517
    Abstract: In empirical studies of the CAPM, it is commonly assumed that (a) the return to the value weighted portfolio of all stocks is a reasonable proxy for the return on the market portfolio of all assets in the economy, and (b) betas of assets remain constant over time. Under these assumptions, Fama and French (1992) find that the relation between average return and beta is flat. We argue that these two auxiliary assumptions are not reasonable. We demonstrate that when these assumptions are relaxed, the empirical support for the CAPM is surprisingly strong. When human capital is also included in measuring wealth, the CAPM is able to explain 28 percent of the cross sectional variation in average returns in the 100 portfolios studied by Fama and French. When, in addition, betas are allowed to vary over the business cycle, the CAPM is able to explain 57 percent. More important, relative size does not explain what is left unexplained after taking sampling errors into account.
    Keyword: Capital and Stock prices
    Subject: G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
  • 7w62f8209?file=thumbnail
    Creator: Glosten, Lawrence R., Jagannathan, Ravi., and Runkle, David Edward.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
    Number: 505
    Abstract: Earlier researchers have found either no relation or a positive relation between the conditional expected return and the conditional variance of the monthly excess return on stocks when they used the standard GARCH-M model. This is in contrast to the negative relation found when other approaches were used to model conditional variance. We show that the difference in the estimated relation arises because the standard GARCH-M model is misspecified. When the standard model is modified allow for (i) the presence for seasonal patterns in volatility, (ii) positive and negative innovations to returns to having different impacts on conditional volatility, and (iii) nominal interest rates to affect conditional variance, we once again find support for a negative relation. Using the modified GARCH-M model, we also show that there is little evidence to support the traditional view that conditional volatility is highly persistent. Also, positive unanticipated returns result in a downward revision of the conditional volatility whereas negative unanticipated returns result in an upward revision of conditional volatility of a similar magnitude. Hence the time series properties of the monthly excess return on stocks appear to be substantially different from that of the daily excess return on stocks.
    Keyword: Asset valuation, Return rate, Risk, Rate of return, Stocks, and Stock market
    Subject: G11 - General financial markets - Portfolio choice ; Investment decisions and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
  • Sb3978261?file=thumbnail
    Creator: Chari, V. V., Jagannathan, Ravi., and Ofer, Aharon R.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
    Number: 364
    Abstract: The fiscal year and the calendar year coincide for a large fraction of firms traded in the New York and American Stock Exchanges. It is therefore possible that part of the large positive abnormal return earned by stocks as a group during the first week of trading in January may be due to temporal resolution of uncertainty accompanying the end of the fiscal year. We study this hypothesis by examining whether stocks of firms with fiscal years ending in months other than December also realize positive abnormal returns, following the end of their fiscal years. We find that there are no excess returns for such firms in the first five trading days following the end of the fiscal year.
    Keyword: Positive abnormal returns, Fiscal year, Cyclical behavior, Excess returns, Stock returns, and January effect
    Subject: G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles