Related papers: Economic Forces in Stock Returns
Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches…
This paper provides a general method to directly translate a classical economic framework with a large number of agents into a field-formalism model. This type of formalism allows the analytical treatment of economic models with an…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
The Efficient Market Hypothesis has been a staple of economics research for decades. In particular, weak-form market efficiency -- the notion that past prices cannot predict future performance -- is strongly supported by econometric…
Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk,…
Firm financials are well established as return predictors, being the inspiration for a large set of anomalies in the asset pricing literature. Employing topological data analysis we revisit the question of association between seven of the…
We study the problem of what causes prices to change. We define the mechanical impact of a trading order as the change in future prices in the absence of any future changes in decision making, and its it informational impact as the…
We statistically investigate the distribution of share price and the distributions of three common financial indicators using data from approximately 8,000 companies publicly listed worldwide for the period 2004-2013. We find that the…
The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and…
We study the price dynamics of stocks traded in a financial market by considering the statistical properties both of a single time series and of an ensemble of stocks traded simultaneously. We use the $n$ stocks traded in the New York Stock…
The dynamics of market prices is described as the evolution of opinions in the trading community regarding future market behavior. The price then is a function of the voting process of the market players in favor to raise or reduce the…
What return should you expect when you take on a given amount of risk? How should that return depend upon other people's behavior? What principles can you use to answer these questions? In this paper, we approach these topics by exploring…
Technical and fundamental analysis are traditional tools used to analyze individual stocks; however, the finance literature has shown that the price movement of each individual stock correlates heavily with other stocks, especially those…
In this paper, we introduce a large system of interacting financial agents in which each agent is faced with the decision of how to allocate his capital between a risky stock or a risk-less bond. The investment decision of investors,…
We study the rank distribution, the cumulative probability, and the probability density of returns of stock prices of listed firms traded in four stock markets. We find that the rank distribution and the cumulative probability of stock…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
Factor models have become a common and valued tool for understanding the risks associated with an investing strategy. In this report we describe Exabel's factor model, we quantify the fraction of the variability of the returns explained by…
Through a novel approach, this paper shows that substantial change in stock market behavior has a statistically and economically significant impact on equity risk premium predictability both on in-sample and out-of-sample cases. In line…
We present a simple dynamical model of stock index returns which is grounded on the ability of the Cyclically Adjusted Price Earning (CAPE) valuation ratio devised by Robert Shiller to predict long-horizon performances of the market. More…