Hübner, Georges ; Université de Liège - ULiège > HEC-Ecole de gestion : UER > Gestion financière
Lejeune, Thomas ; Université de Liège - ULiège > HEC-Ecole de gestion : UER > Gestion financière
Language :
English
Title :
Risk Horizon and Equilibrium Asset Prices
Publication date :
18 December 2012
Event name :
25th Australasian Finance and Banking Conference
Event organizer :
Institute of Global Finance, Australian School of Business, The University of New South Wales
Event place :
Sydney, Australia
Event date :
du 16 décembre 2012 au 18 décembre 2012
Audience :
International
References of the abstract :
The paper proposes an equilibrium asset pricing model that accounts of the incomplete
information on returns distribution and investors' preferences. Only moments up to order
four of unknown unconditional distribution can be observed, and the model does not impose
that portfolio diversi cation or moments preference should hold. Using Chebyshev-type of
inequalities, an intuitive risk measure (risk horizon) is introduced with reference to the speed
of convergence of a security's mean return to its expectations. By an arbitrage argument, this
risk measure is related to the horizon of treasury securities in a system of equations that allows
the calibration of the model parameters using term structure information. In particular, the
expected return on the market portfolio can be endogenously estimated inside this system.
The model calibration on U.S. market data provides plausible parameters estimates and
interesting cyclical patterns in the time series of the expected return. The empirical relevance
of these estimates is examined with tests of statistical and economic predictive ability for
stock excess returns. The results provide signi cant evidence on the added value of the
estimates when compared to popular predictors found in the literature (see a.o. Lettau and
Ludvigson, 2001; Rapach and Wohar, 2006; Goyal and Welch, 2008).
