- 32 Pricing of Liquidity Risk in Emerging Markets: Evidence from Greater China Kuntonrat Davivongs1 and Pantisa Pavabutr2 This paper used the liquidity adjusted capital asset pricing model of Acharya and Pedersen (2005) to examine the liquidity risk of stocks in two retail-based equity markets, China and Taiwan during the period of 1996-2008. We found that the proportion of liquidity risk overwhelms market risk, unlike the findings in US markets. As a pricing factor, the evidence indicated that
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lend to one another and, like Libor, it’s calculated by a daily survey of big banks. While most people have never heard of it, Cdor is incredibly important in the fixed income market, affecting prices on some $6-trillion of loans, futures and interest rate swaps. Despite its role as the mainspring of much of the bond market, no regulator has direct responsibility for Cdor, the banks involved employ complex and often inconsistent methodologies in coming up with their submissions and transparency is
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Neutrality (Modigliani et Miller, 1958, 1961,1963) • Efficient Markets (Fama, 1965, 1970) • Options Pricing Theory (Black & Scholes, 1973, Myers, 1977) • Agency Theory (Jensen, Meckling, 1976) • Efficient Markets II (Fama, 1991) • Behavioural Finance (Kahneman & Tversky, 1979, Shiller, 1981, 2000) Portfolio Selection • Investors are rationals and risk averse • Diversification lowers specific risk • Any portfolio is a combination of the market portfolio and the riskless asset The CAPM Capital Asset Pricing
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Market Beta (β) and Stock Returns - An Analysis of Select Companies I INTRODUCTION During the past three decades, CAPM (Capital Asset Pricing Model) has been studied in great depth and is used as the standard risk-return model by various researchers and academicians. The basic premise of CAPM is that the stocks with a higher beta yield higher returns for the investors. One of the conditions stipulated in the model is that the said return should be higher than the return of the risk-free
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In CAPM, the calculation of beta requires significant judgment. Industry data is used to calculate the beta, but such data is not available for one of the divisions where an alternative method is applied. There is also some controversy in using the market risk premium: the historical risk premium for US stocks significantly differs from the risk premium used in the industry. By making certain assumptions about these variables, four separate costs of capital are estimated for Midland and its three divisions
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the entire history of the stock market from 1926 through the late 1970s. The second academic strategy DFA used was the Book to-Market effect based on the finds of Fama/French1992 paper titled “The Cross-Section of the Expected Stock Returns”. In 1993 Fama/French expanded the research in the a titled “Common Factors in the Expected Returns of Stocks and Bonds” that is known as the “Fama-French Three-Factor Model” Studying the company’s size or the book-to-market ratio may shed light on exposure
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systematic risk and unsystematic risk In finance, systematic risk, sometimes called market risk, aggregate risk, or undiversifiable risk, is the risk associated with aggregate market returns. By contrast, unsystematic risk, sometimes called specific risk, idiosyncratic risk, residual risk, or diversifiable risk, is the company-specific or industry-specific risk in a portfolio, which is uncorrelated with aggregate market returns. Unsystematic risk can be mitigated through diversification, and systematic
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2012 New Setbacks, Further Policy Action Needed In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness. Financial market and sovereign stress in the euro area periphery have ratcheted up, close to end-2011 levels. Growth in a number of major emerging market economies has been lower than forecast. Partly because of a somewhat better-than-expected first quarter, the revised baseline projections in this WEO Update suggest that these
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Lynch, Morgan Stanley Dean Witter, Paine Webber, and Raymond James Financial. Stock price and return data for these nine firms are provided in a separate spreadsheet that you can download from the course schedule at www.duke.edu/∼sgervais. In fact, this spreadsheet contains all six exhibits contained in the case. To estimate the equity beta for each of these firms, you will need to perform a regression of their past returns on past market returns (only the slope of this regression is useful for your analysis
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navigation, search In finance, the Beta (β) of a stock or portfolio is a number describing the volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices, such as the S&P 500.[1] An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally
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