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Essays on economic fundamentals in a...

Bai, Jie.

Essays on economic fundamentals in asset pricing.

Record Type:	Language materials, printed : Monograph/item
Title/Author:	Essays on economic fundamentals in asset pricing.
Author:	Bai, Jie.
Description:	116 p.
Notes:	Advisers: George Constantinides; Ruey Tsay.
Notes:	Source: Dissertation Abstracts International, Volume: 69-07, Section: A, page: 2815.
Contained By:	Dissertation Abstracts International69-07A.
Subject:	Economics, Commerce-Business.
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=3322561
ISBN:	9780549739647

Essays on economic fundamentals in asset pricing.
Bai, Jie.

Essays on economic fundamentals in asset pricing. - 116 p.

Advisers: George Constantinides; Ruey Tsay.

Thesis (Ph.D.)--The University of Chicago, 2008.

This thesis explores the empirical connection between macroeconomic fundamentals and asset pricing. The central question I try to answer is: what are the real, aggregate macroeconomic risks that drive expected stock returns over time and across assets? Empirical studies show that price-based predictors have limited power in forecasting future stock returns. One possible explanation is that these fixed predictors fail to sufficiently capture changes in economic conditions over time. To address this problem, I construct macro indices from a large number of economic series as quantitative descriptions of economic conditions and adaptively choose optimal indices to predict stock returns. I find that adaptive macro indices explain a substantial fraction of the short-term variation in future stock returns and beat both the historical average and commonly used predictors in real-time prediction. In addition, investment strategies exploiting the forecasts based on macro indices result in greater profits than a benchmark buy-and-hold strategy. The results remain robust under scenarios of varying transaction costs and risk tolerance. The composition of these macro indices suggests that particular sectors | interest rates, price indices, housing, and employment | contribute to the predictability of the equity premium. Furthermore, I creates new state variables from predictive macro indices to capture dynamic economic conditions. I show that the innovations in interest rate and housing are priced risk factors in explaining the cross section of stock returns. In the presence of these innovations, both Fama-French factors and innovations in dividend yields, term spread and default spread lose much of their ability to explain the cross-sectional variation.

ISBN: 9780549739647Subjects--Topical Terms:

212577
Economics, Commerce-Business.

Essays on economic fundamentals in asset pricing.
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020 $a 9780549739647
035 $a 00372107
040 $a UMI $c UMI
100 $a Bai, Jie. $3 321831
245 1 0 $a Essays on economic fundamentals in asset pricing.
300 $a 116 p.
500 $a Advisers: George Constantinides; Ruey Tsay.
500 $a Source: Dissertation Abstracts International, Volume: 69-07, Section: A, page: 2815.
502 $a Thesis (Ph.D.)--The University of Chicago, 2008.
520 $a This thesis explores the empirical connection between macroeconomic fundamentals and asset pricing. The central question I try to answer is: what are the real, aggregate macroeconomic risks that drive expected stock returns over time and across assets? Empirical studies show that price-based predictors have limited power in forecasting future stock returns. One possible explanation is that these fixed predictors fail to sufficiently capture changes in economic conditions over time. To address this problem, I construct macro indices from a large number of economic series as quantitative descriptions of economic conditions and adaptively choose optimal indices to predict stock returns. I find that adaptive macro indices explain a substantial fraction of the short-term variation in future stock returns and beat both the historical average and commonly used predictors in real-time prediction. In addition, investment strategies exploiting the forecasts based on macro indices result in greater profits than a benchmark buy-and-hold strategy. The results remain robust under scenarios of varying transaction costs and risk tolerance. The composition of these macro indices suggests that particular sectors | interest rates, price indices, housing, and employment | contribute to the predictability of the equity premium. Furthermore, I creates new state variables from predictive macro indices to capture dynamic economic conditions. I show that the innovations in interest rate and housing are priced risk factors in explaining the cross section of stock returns. In the presence of these innovations, both Fama-French factors and innovations in dividend yields, term spread and default spread lose much of their ability to explain the cross-sectional variation.
590 $a School code: 0330.
650 $a Economics, Commerce-Business. $3 212577
650 $a Economics, Finance. $3 212585
650 $a Economics, Theory. $3 212740
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710 $a The University of Chicago. $3 212422
773 0 $g 69-07A. $t Dissertation Abstracts International
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790 1 0 $a Constantinides, George, $e advisor
790 1 0 $a Tsay, Ruey, $e advisor
791 $a Ph.D.
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