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Two Pillars of Asset Pricing
Lecture for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel Eugene F. Fama
Efficient Capital Markets
- A. Early Work
- B. Event Studies
Two Pillars of Asset Pricing Lecture for the Sveriges Riksbank Prize - - PowerPoint PPT Presentation
Two Pillars of Asset Pricing Lecture for the Sveriges Riksbank Prize - - PowerPoint PPT Presentation
Two Pillars of Asset Pricing Lecture for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel Eugene F. Fama Efficient Capital Markets A. Early Work B. Event Studies R it = a i + b i R Mt + e it Figure 1 - Cumulative
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0,11 0,22 0,33 0,44
- 30
- 25
- 20
- 15
- 10
- 5
5 10 15 20 25 30
Cumulative average residual Month relative to split month 0
Figure 1 - Cumulative average residuals in the months surrounding a split
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- C. Predictive Regressions
it+1 = Et(rt+1) + Et(πt+1) πt+1 = a + bit+1 + εt
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- D. Time-Varying Expected Stock Returns
Rt = a + bD/Pt-1 + eit
- E. “Bubbles”
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Asset Pricing Models
- A. Fama and MacBeth (1973)
Rit = at + a1tbi + a2tMCi,t-1 + a3tB/Mi,t-1 + eit
- B. The Fatal Problems of the CAPM
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The Three-Factor Model E(Rit) - RFt = bi[E(RMt) – RFt] + siE(SMBt) + hi E(HMLt) The regression used to test the model is, Rit - RFt = ai + bi(RMt – RFt) + siSMBt + hiHMLt + eit
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