Van Rensburg and Robertson (2003a) stated that the CAPM beta has little or no relationship with returns generated by size and price to earnings sorted portfolios. This study intends to demonstrate that a reformulated CAPM beta, estimated using return on equity as opposed to share returns, unravels the size and value premium. The study proves that the “cash-flow” generated beta partially explains the cross-sectional variation in share returns when measured over the long run, specifically when portfolios are sorted on book to market, however the cash flow beta is less successful when attempting to explain the small size premium. The premise of the study is that the cash flow dynamics of share returns eventually dominate the first and second moments and thus result in cash flow based measures of risk and return that should succeed in explaining the cross-sectional variation in share returns. The study makes use of vector autoregressive models in order to examine the short term effect of structural shocks to the cash flow fundamentals of a stock or portfolio through impulse response functions as well as quantifying a long-term relationship between cash flow fundamentals and share returns using a VECM specification. The study further uses fixed effects, random effects and GMM/dynamic panel data cross-sectional regressions in order to examine the ability of the cash flow beta explaining the value and size premium. The results of the study are mixed. The cash flow beta does well in explaining the returns of portfolios sorted on book to market, but fails to do the same with size sorted portfolios. In the cash flow betas favour, it performs far better than the conventionally measured CAPM beta throughout the study.

Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2015. / Researchers have suggested that emerging markets’ activity is driven largely by unlisted companies. These companies are dynamic, and show a relatively equitable income distribution. However, they operate under severe challenges which can be a deterrent to their success. In spite of these difficulties, the companies form exceptional investment targets due to their innovative abilities, ability to customize products and formulate business models that reduce bottlenecks and input costs as well as take advantage of economies of scale and scope. Important risk factors such as: political, currency, corporate governance and information risks, amongst others, should be factored in during the valuation process of emerging market companies. In this paper, several criteria are used to assess thirteen popular emerging market valuation models’ ability to effectively incorporate these risks. Based on the outcomes of the assessment a best fit model is selected. However, none of the emerging market valuation models explicitly factor in irrationality of market participants. In order to address this, the study focuses on seven behavioural approaches to valuation under the assumption of investor rationality and managerial overconfidence and/or optimism, with a purpose to select one to include in the above mentioned “best fit” emerging market valuation models. Next, assessment mechanisms for adapting these two models for private company valuation were flagged by discussing approaches currently used in academia and corporate finance. Finally, possible means of combining the three objectives, and assessing the success of doing so, as an area for further research, were recommended. Key Words: emerging markets, valuation, risk premium, country risk, systematic risk, unsystematic risk, private companies, managerial overconfidence, managerial optimism, irrationality, efficient markets, capital asset pricing model

Thesis (M.Com. (Finance))--University of the Witwatersrand, Faculty of Commerce, Law and Management, School of Economic and Business Sciences, 2016 / The purpose of the study is to investigate the effects of relaxing the assumption of multivariate normality typically utilised within the traditional asset pricing framework. This is achieved in two ways. The first involves the introduction of higher moments into the linear Capital Asset Pricing Model while the second involves a Monte Carlo experiment to determine the impact of skewness and kurtosis on test statistics traditionally employed to assess the validity of asset pricing models. We commence by establishing non-normality for the majority of sample portfolios. A cross-sectional regression approach is employed to estimate factor risk premia and test higher moment Capital Asset Pricing Models. Unconditional coskewness and unconditional cokurtosis are found to be priced within the market equity (size) sorted and book equity/market equity (value) sorted portfolio sets over the period January 1993 to December 2013. Conditional coskewness and conditional cokurtosis are found to be priced for only the size sorted portfolios over the period January 1997 to December 2013. Factor risk premia estimated for coskewness are generally positive while risk premia estimated for cokurtosis are negative. This suggests a positive relationship between coskewness and expected return and a negative relationship between cokurtosis and expected return. The results of the asset pricing model tests are mixed. The pricing errors for higher moment Capital Asset Pricing Models are shown to be significantly different from zero for size sorted portfolios while pricing errors on the value sorted, dual size-value sorted and industry portfolios are found to be statistically insignificant. This suggest that none of the asset pricing models tested are the true model as it would explain variation in expected returns regardless of the data generating process. Finally we show that the Ordinary Least Square Wald test statistic has the most desirable size characteristics while the Generalised Least Squares J-test statistic has the most desirable power characteristics when dealing with non-normal data.

Thesis submitted in fulfilment of the requirements for the Masters in Finance and Investments in the Faculty of Commerce, Law and Management Wits Business School At the University of Witwatersrand / The study focuses on determining the driving factors of the performance of different hedge fund strategies in the South African industry. This is done through the application of an augmented capital asset pricing model. The model is predicated on the original (Sharpe, 1964) and (Lintner, 1965) Capital Asset Pricing Model. The researcher uses the excess market returns and the South African Volatility index as independent variables in the explanation of hedge fund returns at strategy and portfolio level. Through the analysis, the researcher finds that the excess market returns and the South African Volatility Index characterize the hedge fund expected returns for some of the strategies using OLS and GMM techniques. The second section uses a system of seemingly unrelated regressions for both the OLS and GMM techniques to determine if the two explanatory variables are priced into the different strategies; this indeed is shown to be the case for some of the strategies examined in the analysis. / MT2017

Thesis. 1980. Ph.D.--Massachusetts Institute of Technology. Dept. of Economics. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY. / Bibliography : leaves 182-186. / Ph.D.

Thesis (M.S.)--Massachusetts Institute of Technology, Alfred P. Sloan School of Management, 1981. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY. / Bibliography: leaves 336-339. / by Josephine S. Jimenez. / M.S.

The first essay examines the joint determination of the contract for a private equity (PE) fund manager and the equilibrium risk premium of the PE fund. My model relies on two realistic features of PE funds. First, I model agency frictions between PE fund's investors and manager. Second, I model the illiquidity of PE fund investments. To alleviate agency frictions, compensation to the manager becomes sensitive to the PE fund performance, which makes investors excessively hold the PE fund to hedge the manager's fees. This induces a negative effect on the risk premium in equilibrium. For the second feature, I add search frictions in the secondary market for PE fund's shares. PE fund returns also contain a positive illiquidity premium since investors internalize the possibility of holding sub-optimal positions in the PE fund. Thus, my model delivers a plausible explanation for the inconclusive findings of the empirical literature regarding PE funds' performance. Agency conflicts deliver a lower risk-adjusted performance of PE funds, while illiquidity risk can raise it. In the second essay, coauthored with Andrew Ang and Pierre Collin-Dufresne, we investigate how often investors should adjust asset class allocation targets when returns are predictable and updating allocation targets is costly. We compute optimal tactical asset allocation (TAA) policies over equities and bonds. By varying how often the weights are reset, we estimate the utility costs of different frequencies of TAA decisions relative to the continuous optimal Merton (1971) policy. We find that the utility cost of infrequent switching is minimized when the investor updates the target portfolio weights annually. Tactical tilts taking advantage of predictable stock returns generate approximately twice as much value as those market-timing bond returns. In the third essay, also coauthored with Andrew Ang and Pierre Collin-Dufresne, we revisit the question of a pension sponsor's optimal asset allocation in the presence of a downside constraint and the possibility for the pension sponsor to contribute money to the pension plan. We analyze the joint problem of optimal investing and contribution decisions, when there is disutility associated with contributions. Interestingly, we find that the optimal portfolio decision often looks like a ``risky gambling" strategy where the pension sponsor increases the pension plan's allocation to risky assets in bad states. This is very different from the traditional prediction, where in economy downturns the pension sponsor should fully switch to the risk-free portfolio. Our solution method involves a separation of the pension sponsor's problem into a utility maximization problem and a disutility minimization one.

This thesis studies the equilibrium behavior of continuous-time capital markets with various market assumptions. These assumptions include different settings of the investment opportunity set and consideration of the variability of the number of shares outstanding of stocks and the investment horizons of investors. Two capital asset pricing models (CAPMs) are established for every case. One of these CAPM focuses on the study of the relationship between the terminal rate of return of any given portfolio and the benchmark portfolios. The other CAPM focuses on the instantaneous rate of return. The market portfolios (and their substitutes for some cases) of all market situations are explicitly derived given homogeneous expectations. The mean-variance efficiencies with a specific terminal time are then investigated. It is proved that some of these market portfolios must be inefficient for a non-zero investment horizon. Moreover, the instantaneous efficiency of portfolios is studied for some market situations. The CAPMs are then developed based on the conditions of each market situation. / Chiu Chun Hung. / "December 2003." / Adviser: Xun Yu Zhou. / Source: Dissertation Abstracts International, Volume: 64-11, Section: A, page: 4147. / Thesis (Ph.D.)--Chinese University of Hong Kong, 2003. / Includes bibliographical references (p. 185-187). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Electronic reproduction. Ann Arbor, MI : ProQuest dissertations and theses, [200-] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Electronic reproduction. Ann Arbor, MI : ProQuest Information and Learning Company, [200-] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Abstracts in English and Chinese. / School code: 1307.

Fu, Hoi Man. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2009. / Includes bibliographical references (leaves 31-34). / Abstract also in Chinese.

Standard asset pricing theories suggest that only systematic risk is priced. Empirical studies report a relationship between idiosyncratic volatility or risk (IVOL) and asset price. The most common explanation for this anomaly is that households under-diversify creating a Bad Model problem. This paper uses an Intermediary Asset Pricing Model (IAPM) as a way to control for under-diversification in evaluating the relationship between IVOL and asset price. We find that IVOL premia is lower in an IAPM. Our findings indicate that under-diversification can explain the anomaly partially.