Capital Asset Pricing with a Stochastic HorizonCitation formats

Standard

Capital Asset Pricing with a Stochastic Horizon. / Brennan, Michael; Zhang, Yuzhao.

In: Journal of Financial and Quantitative Analysis, Vol. 55, No. 3, 24.10.2018, p. 783-827.

Research output: Contribution to journalArticlepeer-review

Harvard

Brennan, M & Zhang, Y 2018, 'Capital Asset Pricing with a Stochastic Horizon', Journal of Financial and Quantitative Analysis, vol. 55, no. 3, pp. 783-827. https://doi.org/10.1017/S0022109018001412

APA

Brennan, M., & Zhang, Y. (2018). Capital Asset Pricing with a Stochastic Horizon. Journal of Financial and Quantitative Analysis, 55(3), 783-827. https://doi.org/10.1017/S0022109018001412

Vancouver

Brennan M, Zhang Y. Capital Asset Pricing with a Stochastic Horizon. Journal of Financial and Quantitative Analysis. 2018 Oct 24;55(3):783-827. https://doi.org/10.1017/S0022109018001412

Author

Brennan, Michael ; Zhang, Yuzhao. / Capital Asset Pricing with a Stochastic Horizon. In: Journal of Financial and Quantitative Analysis. 2018 ; Vol. 55, No. 3. pp. 783-827.

Bibtex

@article{e9e5e097e47f4d1990af3769d6bb59c8,
title = "Capital Asset Pricing with a Stochastic Horizon",
abstract = "In this paper we present empirical tests of an extended version of the capital asset pricing model (CAPM) that replaces the single-period horizon with a probability distribution over different horizons. Adopting a simple parameterization of the probability distribution of the length of the horizon, we estimate the parameters of the distribution as well as the parameters of the CAPM. We find that the extended model is not rejected for several different samples of common stocks, and for these samples it outperforms not only the standard CAPM but also the Fama–French (1993) 3-factor model. The probability distribution over horizon dates varies over time with the New York Stock Exchange (NYSE) turnover rate. We also find that returns satisfy the Euler equation of a representative financial institution that holds the market portfolio and has horizon probabilities estimated from 13F filings.",
author = "Michael Brennan and Yuzhao Zhang",
year = "2018",
month = oct,
day = "24",
doi = "10.1017/S0022109018001412",
language = "English",
volume = "55",
pages = "783--827",
journal = "Journal of Financial and Quantitative Analysis",
issn = "0022-1090",
publisher = "Cambridge University Press",
number = "3",

}

RIS

TY - JOUR

T1 - Capital Asset Pricing with a Stochastic Horizon

AU - Brennan, Michael

AU - Zhang, Yuzhao

PY - 2018/10/24

Y1 - 2018/10/24

N2 - In this paper we present empirical tests of an extended version of the capital asset pricing model (CAPM) that replaces the single-period horizon with a probability distribution over different horizons. Adopting a simple parameterization of the probability distribution of the length of the horizon, we estimate the parameters of the distribution as well as the parameters of the CAPM. We find that the extended model is not rejected for several different samples of common stocks, and for these samples it outperforms not only the standard CAPM but also the Fama–French (1993) 3-factor model. The probability distribution over horizon dates varies over time with the New York Stock Exchange (NYSE) turnover rate. We also find that returns satisfy the Euler equation of a representative financial institution that holds the market portfolio and has horizon probabilities estimated from 13F filings.

AB - In this paper we present empirical tests of an extended version of the capital asset pricing model (CAPM) that replaces the single-period horizon with a probability distribution over different horizons. Adopting a simple parameterization of the probability distribution of the length of the horizon, we estimate the parameters of the distribution as well as the parameters of the CAPM. We find that the extended model is not rejected for several different samples of common stocks, and for these samples it outperforms not only the standard CAPM but also the Fama–French (1993) 3-factor model. The probability distribution over horizon dates varies over time with the New York Stock Exchange (NYSE) turnover rate. We also find that returns satisfy the Euler equation of a representative financial institution that holds the market portfolio and has horizon probabilities estimated from 13F filings.

U2 - 10.1017/S0022109018001412

DO - 10.1017/S0022109018001412

M3 - Article

VL - 55

SP - 783

EP - 827

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

SN - 0022-1090

IS - 3

ER -