An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments.

This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics.

The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.

About the Author

Wayne Ferson is Ivadelle and Theodore Johnson Chair of Banking and Finance at the University of Southern California.

Ⅰ. Introduction to empirical asset pricing 1. Stochastic discount factors and yen 2. State pricing 3. Maximization and the m-talk euler equations 4. Expected risk premiums and alphas 5. So many models, so little time (taxonomy) 6. Applications of m-talk 7. The three paradigms of empirical asset pricing Ⅱ. Mean-variance models 8. Mean efficiency and the capm 9. Mean variance efficiency with conditioning information 10. Variance bounds on stochastic discount factors 11. Variance bounds with conditioning information Ⅲ. Multi-beta pricing 12. Arbitrage pricing and factor analysis 13. Multibeta equilibrium models 14. Multibeta models with conditioning information Ⅳ. Empirical asset pricing tools 15. Introduction to the generalized method of moments (GMM) 16. Gmm implementation 17. GMM covariance matrices 18. GMM tests 19. Advanced gmm 20. GMM examples 21. Multivariate regression models 22. Cross sectional regression methods 23. Introduction to panel methods in finance 24. Bootstrap methods and multiple comparisons Ⅴ. Investment performance evaluation 25. Classical investment performance evaluation 26. Conditional investment performance evaluation 27. Term structure and bond fund performance 28. Investment performance evaluation: a modern perspective Ⅵ. Selected topics 29. Production-based asset pricing 30. The campbell shiller approximation and vector autoregressions 31. Long run risk models 32. Predictability: an overview 33. Characteristics versus covariances 34. Volatility and the cross-section of stock returns Appendix References Index