英语论文资料A Bayesian View of Temporary Components in Asset Prices.pdf

英语论文资料A Bayesian View of Temporary Components in Asset Prices.pdf

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A Bayesian View of Temporary Components in Asset Prices Bjørn Eraker∗ This draft: February 2007 Abstract This paper studies models in which the a stock price contains a random walk and a stationary component, as in Fama & French (1988) and Poterba and Summers (1988). We extend this model to allow for two latent factors which generate short term and long term autocorrelations, respectively. To facilitate econometric identification, we assume that these factors are common across multiple asset returns, and we estimate the factor loadings. In an ap- plication to size and book/market sorted portfolios, we find the short term factor economically and statistically insignificant. Estimates of parameters re- lating to the long range component suggest that portfolios of small firm stock display about three times the amount of mean reversion than for large firm stocks. Overall, the evidence suggests that mean reversion is largely a small firm phenomenon. The evidence is consistent with dynamic equilibrium models in which asset prices co-integrate with aggregate consumption or dividends. ∗bjorn.eraker@duke.edu. I am grateful for comments from Michael Brandt, Tim Bollerslev, George Tauchen and seminar participants at the Duke Financial Econometrics workshop. A pre- vious version of the manuscript was circulated under the title ”Predicting Asset Returns using Autoregressive Latent Component Models.” 1 1 Introduction Few topics in finance have been debated as heavily as the random walk hypothesis of secu

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