Two Essays in Empirical Asset Pricing
Date
2017
Authors
Nardi, Flavio
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Abstract
This thesis includes two research papers in the area of
empirical asset pricing. In the first research paper titled
"Option implied moments and risk aversion", under reasonable
assumptions, I provide empirical evidence that index options
implied higher moments can predict the index returns and Sharpe
ratio. Specifically, I present a method to recover option implied
subjective moments of the S\&P500 index under the assumption of
no arbitrage and logarithmic utility. This result adds further
evidence to the extensive finance literature that claims that
market returns are predictable. In the second research paper
titled "Expected returns: systematic risk or firm
characteristics" I provide empirical evidence that expected
returns can be viewed as determined by the exposure of firm
returns to systematic factors that are based on firm
characteristics, and not directly to the cross--sectional
differences in the firm characteristics. This result addresses an
ongoing debate within the empirical asset pricing literature as
to whether the cross--section of expected returns is "explained"
by the loadings to systematic factors or by differences in firm
characteristics. The evidence I provide supports the loading to
systematic factors story, consistent with the consumption asset
pricing model.
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Empirical asset pricing
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Thesis (MPhil)
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