Apoorva Javadekar is leading Rising Star of India in field of Financial Economics. He is PhD candidate in Economics, at Boston University, USA. He is a son of Indian Politician Prakash Javadekar and also a
Badminton Player of India
- The document discusses efficient portfolios and the efficient frontier in the context of investing in different combinations of stocks.
- It explains that a portfolio with a higher expected return and lower volatility is more efficient. Investing solely in one stock, like Coca-Cola, is inefficient compared to a diversified portfolio.
- The correlation between stocks affects the volatility of a portfolio - lower correlation results in lower volatility. Short selling, more stocks, and including risk-free assets like Treasury bills can also affect the efficient frontier.
- The tangent portfolio, which generates the steepest line when combined with the risk-free rate, provides the best risk-return tradeoff. The efficient portfolio is a combination of the tangent
Apoorva Javadekar -Ratings Quality Under ’Investor-Pay ModelApoorva Javadekar
The document summarizes a paper that analyzes the incentives of credit rating agencies (CRAs) under an investor-pay model. The main findings are:
1) Ratings quality would be countercyclical, with CRAs exerting higher effort and producing more accurate ratings during economic downturns compared to expansions.
2) Reputable CRAs' incentives to maintain high ratings quality decreases after achieving a certain reputational level.
3) Ratings inflation seen under the issuer-pay model could be replaced by "ratings deflation" under investor-pay, as it is more costly for CRAs to erroneously rate bad projects as good during downturns.
Apoorva Javadekar : Cross country liquidity in financial marketsApoorva Javadekar
Apoorva javadekar - The main objective of this term paper is to identify if the liquidity in In-
dian equity markets and US equity markets is linked to each other. The main methodology used is VAR (vector Auto regression).
The document discusses the information age and living in an information society. It defines an information society as one characterized by a high level of information intensity in everyday life and work through common technologies. It also outlines the main components of the internet, including the world wide web, email, and telnet, and describes the three types of computer networks - wide area networks, local area networks, and metropolitan area networks.
This blog is a place by Apoorva javadekar to discuss various aspects of life. But in specific, it discusses Economics, Mathematics, Politics and sports events.
I like to write about recent economic policies, Socio - political issues, reviews about new books, cricket and fitness. This blog is a good place to take a look at least once a week.
Apoorva Javadekar - Conditional Correlations of Macro Variables and Implica...Apoorva Javadekar
This ppt By Apoorva Javadekar is all about Understanding the structure of the Cross Country Correlation for Macro Variables: and Asset Pricing and Risk Sharing Implications
- The document discusses efficient portfolios and the efficient frontier in the context of investing in different combinations of stocks.
- It explains that a portfolio with a higher expected return and lower volatility is more efficient. Investing solely in one stock, like Coca-Cola, is inefficient compared to a diversified portfolio.
- The correlation between stocks affects the volatility of a portfolio - lower correlation results in lower volatility. Short selling, more stocks, and including risk-free assets like Treasury bills can also affect the efficient frontier.
- The tangent portfolio, which generates the steepest line when combined with the risk-free rate, provides the best risk-return tradeoff. The efficient portfolio is a combination of the tangent
Apoorva Javadekar -Ratings Quality Under ’Investor-Pay ModelApoorva Javadekar
The document summarizes a paper that analyzes the incentives of credit rating agencies (CRAs) under an investor-pay model. The main findings are:
1) Ratings quality would be countercyclical, with CRAs exerting higher effort and producing more accurate ratings during economic downturns compared to expansions.
2) Reputable CRAs' incentives to maintain high ratings quality decreases after achieving a certain reputational level.
3) Ratings inflation seen under the issuer-pay model could be replaced by "ratings deflation" under investor-pay, as it is more costly for CRAs to erroneously rate bad projects as good during downturns.
Apoorva Javadekar : Cross country liquidity in financial marketsApoorva Javadekar
Apoorva javadekar - The main objective of this term paper is to identify if the liquidity in In-
dian equity markets and US equity markets is linked to each other. The main methodology used is VAR (vector Auto regression).
The document discusses the information age and living in an information society. It defines an information society as one characterized by a high level of information intensity in everyday life and work through common technologies. It also outlines the main components of the internet, including the world wide web, email, and telnet, and describes the three types of computer networks - wide area networks, local area networks, and metropolitan area networks.
This blog is a place by Apoorva javadekar to discuss various aspects of life. But in specific, it discusses Economics, Mathematics, Politics and sports events.
I like to write about recent economic policies, Socio - political issues, reviews about new books, cricket and fitness. This blog is a good place to take a look at least once a week.
Apoorva Javadekar - Conditional Correlations of Macro Variables and Implica...Apoorva Javadekar
This ppt By Apoorva Javadekar is all about Understanding the structure of the Cross Country Correlation for Macro Variables: and Asset Pricing and Risk Sharing Implications
Apoorva Javadekar -Role of Reputation For Mutual Fund FlowsApoorva Javadekar
As per apoorva javadekar From this ppt
we can conclude that 3.Some 2 nd half risk-sfiting for bad repute funds .Fund Flow heterogeniety could be explained through presence of loss-averse investors
The document analyzes the leadership style of Joe Rousseau, the general manager of the author's organization. It discusses that Rousseau displays an authoritative/influencer leadership style that focuses on motivating employees and supporting their success. He believes in setting goals for employees and listening to their suggestions to improve morale. The author believes Rousseau's high character and interpersonal skills have contributed to the organization's success. The author also observes that Rousseau's democratic and behavioral leadership styles of including employees in decision-making and serving as a role model support career development and commitment to the organization.
The document summarizes the annotated bibliography portion of a paper on human trafficking. It examines the issue through the lenses of human resources and communication studies. It provides annotations for 6 sources on law enforcement training needs, statistics on human trafficking, training hospital staff to identify victims, an account from a survivor, increased government funding to combat trafficking, and long-term impacts on victims. The sources cover the quantitative and qualitative aspects of theories regarding human trafficking.
This document discusses using one-way ANOVA to compare mean differences between groups. It provides instructions for running a one-way ANOVA in SPSS using both the "Compare Means" and "General Linear Model" options. Both methods produce the same conclusions, but the General Linear Model allows estimating effect size. The document also demonstrates how to generate descriptive statistics, plots of group means, and conduct post-hoc comparisons. Exercises are provided applying these techniques to another dataset.
Week- 5 Interest Rates and Stock MarketMoney and Banking Econ .docxalanfhall8953
Week- 5 Interest Rates and Stock Market
Money and Banking Econ 311
Thursday 7 - 9:45
Instructor: Thomas L. Thomas
Response over Time to an Increase in Money Supply Growth
2
Risk Structure of Interest Rates
Bonds with the same maturity have different interest rates due to:
Default risk
Liquidity
Tax considerations
Long-Term Bond Yields, 1919–2011
Sources: Board of Governors of the Federal Reserve System, Banking and Monetary Statistics, 1941–1970; Federal Reserve; www.federalreserve.gov/releases/h15/data.htm.
4
Risk Structure of Interest Rates (cont’d)
Default risk: probability that the issuer of the bond is unable or unwilling to make interest payments or pay off the face value
U.S. Treasury bonds are considered default free (government can raise taxes).
Risk premium: the spread between the interest rates on bonds with default risk and the interest rates on (same maturity) Treasury bonds
5
Bond Ratings by Moody’s, Standard and Poor’s, and Fitch
6
Risk Structure of Interest Rates (cont’d)
Liquidity: the relative ease with which an asset can be converted into cash
Cost of selling a bond
Number of buyers/sellers in a bond market
Income tax considerations
Interest payments on municipal bonds are exempt from federal income taxes.
Term Structure of Interest Rates
Bonds with identical risk, liquidity, and tax characteristics may have different interest rates because the time remaining to maturity is different
Yield curve: a plot of the yield on bonds with differing terms to maturity but the same risk, liquidity and tax considerations
Upward-sloping: long-term rates are above
short-term rates
Flat: short- and long-term rates are the same
Inverted: long-term rates are below short-term rates
Facts that the Theory of the Term Structure of Interest Rates Must Explain
Interest rates on bonds of different maturities move together over time
When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term rates are high, yield curves are more likely to slope downward and be inverted
Yield curves almost always slope upward
9
Three Theories to Explain the Three Facts
Expectations theory explains the first two facts but not the third
Segmented markets theory explains fact three but not the first two
Liquidity premium theory combines the two theories to explain all three facts
10
Expectations Theory
The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond
Buyers of bonds do not prefer bonds of one maturity over another; they will not hold
any quantity of a bond if its expected return
is less than that of another bond with a different maturity
Bond holders consider bonds with different maturities to be perfect substitutes
11
Expectations Theory: Example
Let the c.
The document discusses various topics related to financial markets and interest rates, including different types of financial markets and institutions, how capital is transferred between savers and borrowers, factors that affect interest rates such as production opportunities and inflation, and risks associated with investing overseas such as country risk and exchange rate risk.
Value slides 2022_430102343b4e7f831172c529b654a6ed.pptxHafizArslan19
This document summarizes research on the value premium - the tendency for stocks with value characteristics like low price-to-book ratios to outperform growth stocks over the long run. It discusses several potential explanations for the value premium proposed in academic literature, including that investors extrapolate past growth too far into the future for growth stocks and are surprised by mean reversion for value stocks. The document also reviews evidence that investors predict near-term earnings accurately but overestimate longer-term growth, and that value stocks experience positive earnings surprises while growth stocks see negative surprises.
The Arbitrage Pricing Theory (APT) provides an alternative to the Capital Asset Pricing Model (CAPM) for estimating expected returns. The APT assumes returns are generated by multiple systematic risk factors rather than a single market factor. It allows for assets to be mispriced and does not require assumptions of a market portfolio or homogeneous expectations. Under the APT, the expected return of an asset is equal to the risk-free rate plus the product of each risk factor's premium and the asset's sensitivity to that factor.
Effects of dividends on common stock prices the nepalese evidencePankajKunwar3
presentation on effects of dividends on common stock prices in the nepelese evidence paper was was published by prof. rade shyam pradhan in the the excellence
This document summarizes research on the growth of the options market and strategies for using options to enhance portfolio returns. Some key points:
- Global equity derivatives trading volumes increased 11% in 2011, with equity derivatives making up 64% of total derivatives trading. Options volumes in the US rose 17% in 2011.
- Independent research finds continued growth in options usage, with 36-94% of financial advisors and 65% of institutions expecting to increase future usage.
- Options volumes have recently outpaced equity volumes, driven by more market participants and product diversity.
- Common strategies discussed include hedging, income, volatility, and pairs trades using options.
- Case studies demonstrate analyzing Greeks,
This document discusses factors that influence stock prices of industrial companies listed on the Indonesia Stock Exchange. It presents a literature review on debt ratio, price-earnings ratio, earnings per share, company size, and company value as independent variables that may predict stock price as the dependent variable. The document then describes the research methodology, which uses a quantitative multiple linear regression analysis of secondary data from 114 industrial companies to determine the relationship between the independent and dependent variables. The results of the analysis show that all four independent variables (debt ratio, price-earnings ratio, earnings per share, size) have a significant influence on stock price both simultaneously and partially, with earnings per share having the strongest influence. Conclusions are that companies should manage these
This document discusses how to value bonds and stocks. It defines bonds, how bond values are determined from present values of coupon payments and par value, and how bond prices are inversely related to market interest rates. It also discusses how to value common stocks based on present values of expected future dividends and capital gains, using dividend discount models for stocks with zero, constant, or differential growth. Growth opportunities can increase stock value if positive NPV projects are undertaken. The price-earnings ratio is also discussed.
This document discusses how to value bonds and stocks. It defines bonds, how bond values are determined from present values of coupon payments and par value, and how bond prices are inversely related to market interest rates. It also discusses how to value common stocks based on present values of expected future dividends and capital gains, using dividend discount models for stocks with zero, constant, or differential growth. Growth opportunities can increase stock value if positive NPV projects are undertaken. The price-earnings ratio is also discussed.
The document discusses various topics related to investing, including:
1) Compound interest and how it allows investments to grow exponentially over time through reinvestment of interest.
2) The three main asset classes - equities, fixed income, and cash equivalents - and how proper allocation between them can optimize returns while minimizing risk.
3) Different types of investments including stocks, bonds, mutual funds and their basic characteristics. Key factors like earnings, price-earnings ratios, and yields are discussed for evaluating investments.
Stock Prices valuation of IT Companies in India: An Empirical Study Dr.Punit Kumar Dwivedi
In this paper, we would like to answer the questions such as
Is it worthwhile investing in such software companies?
Will capital appreciation of software companies continue in the future?
It is important to analyze whether investors will be benefitted by investing in this software industry or whether software companies’ outperformance over other industries is just the temporary phase. Finally, we would like to suggest our recommendations over software industries whether investors should buy/sell/hold the stock of these companies based on our analysis.
This chapter discusses investing in stocks and the stock market. It covers topics such as how stocks are traded on exchanges and over-the-counter markets, methods for valuing stocks like the dividend discount and Gordon growth models, how the market sets stock prices, sources of error in valuations, important stock market indexes, investing in foreign stocks, and regulation of the stock market by the SEC.
This document provides an overview of options pricing and the Black-Scholes model. It defines what an option is and the different types of options. It then explains the components of an option's price, including intrinsic value and time value. The document outlines the key factors that affect an option's price. It introduces the Black-Scholes model for pricing options and lists the assumptions and inputs required. Steps for calculating standard deviation and adjusting for dividends are also provided. Two example questions are given at the end to demonstrate using the Black-Scholes formula to price a call and put option.
The document discusses capital asset pricing theory and portfolio theory. It introduces key concepts such as the efficient frontier, which shows the set of portfolios with the highest expected return for a given level of risk. It also discusses the Capital Asset Pricing Model (CAPM), which proposes that the expected return of an asset is determined by its sensitivity to non-diversifiable risk (beta). The CAPM suggests relationships like the security market line and capital market line. However, the CAPM faces empirical criticisms and its assumptions do not always hold in the real world. Alternative models like the Arbitrage Pricing Theory were developed that allow for multiple factors to influence returns.
This document presents research on analyzing the residential real estate markets in Gurgaon, India by comparing "forward" or under construction properties to "spot" or completed properties. The research aims to understand the relationship between the two markets, how investment returns vary between them, and what factors buyers consider when selecting properties. Key findings include that the spot and forward markets are co-integrated, with the spot market leading price discovery and information flowing from spot to forward. The value of invested equity generally increases over time for both markets due to price appreciation and repayment of debt. Buyers prioritize attributes like location, amenities, and reputation of the developer when selecting properties.
Capital Markets and the Pricing of RiskAhmedMinhas3
This document provides an overview of chapter 10 from a corporate finance textbook. It discusses key concepts related to risk and return, including probability distributions, expected return, variance, standard deviation, and historical returns of stocks and bonds. Examples are provided to demonstrate how to calculate expected return, standard deviation, and realized annual returns for stocks based on price and dividend data over a period of time. The learning objectives cover defining and applying common risk and return measures as well as explaining the relationship between risk and return.
Apoorva Javadekar -Role of Reputation For Mutual Fund FlowsApoorva Javadekar
As per apoorva javadekar From this ppt
we can conclude that 3.Some 2 nd half risk-sfiting for bad repute funds .Fund Flow heterogeniety could be explained through presence of loss-averse investors
The document analyzes the leadership style of Joe Rousseau, the general manager of the author's organization. It discusses that Rousseau displays an authoritative/influencer leadership style that focuses on motivating employees and supporting their success. He believes in setting goals for employees and listening to their suggestions to improve morale. The author believes Rousseau's high character and interpersonal skills have contributed to the organization's success. The author also observes that Rousseau's democratic and behavioral leadership styles of including employees in decision-making and serving as a role model support career development and commitment to the organization.
The document summarizes the annotated bibliography portion of a paper on human trafficking. It examines the issue through the lenses of human resources and communication studies. It provides annotations for 6 sources on law enforcement training needs, statistics on human trafficking, training hospital staff to identify victims, an account from a survivor, increased government funding to combat trafficking, and long-term impacts on victims. The sources cover the quantitative and qualitative aspects of theories regarding human trafficking.
This document discusses using one-way ANOVA to compare mean differences between groups. It provides instructions for running a one-way ANOVA in SPSS using both the "Compare Means" and "General Linear Model" options. Both methods produce the same conclusions, but the General Linear Model allows estimating effect size. The document also demonstrates how to generate descriptive statistics, plots of group means, and conduct post-hoc comparisons. Exercises are provided applying these techniques to another dataset.
Week- 5 Interest Rates and Stock MarketMoney and Banking Econ .docxalanfhall8953
Week- 5 Interest Rates and Stock Market
Money and Banking Econ 311
Thursday 7 - 9:45
Instructor: Thomas L. Thomas
Response over Time to an Increase in Money Supply Growth
2
Risk Structure of Interest Rates
Bonds with the same maturity have different interest rates due to:
Default risk
Liquidity
Tax considerations
Long-Term Bond Yields, 1919–2011
Sources: Board of Governors of the Federal Reserve System, Banking and Monetary Statistics, 1941–1970; Federal Reserve; www.federalreserve.gov/releases/h15/data.htm.
4
Risk Structure of Interest Rates (cont’d)
Default risk: probability that the issuer of the bond is unable or unwilling to make interest payments or pay off the face value
U.S. Treasury bonds are considered default free (government can raise taxes).
Risk premium: the spread between the interest rates on bonds with default risk and the interest rates on (same maturity) Treasury bonds
5
Bond Ratings by Moody’s, Standard and Poor’s, and Fitch
6
Risk Structure of Interest Rates (cont’d)
Liquidity: the relative ease with which an asset can be converted into cash
Cost of selling a bond
Number of buyers/sellers in a bond market
Income tax considerations
Interest payments on municipal bonds are exempt from federal income taxes.
Term Structure of Interest Rates
Bonds with identical risk, liquidity, and tax characteristics may have different interest rates because the time remaining to maturity is different
Yield curve: a plot of the yield on bonds with differing terms to maturity but the same risk, liquidity and tax considerations
Upward-sloping: long-term rates are above
short-term rates
Flat: short- and long-term rates are the same
Inverted: long-term rates are below short-term rates
Facts that the Theory of the Term Structure of Interest Rates Must Explain
Interest rates on bonds of different maturities move together over time
When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term rates are high, yield curves are more likely to slope downward and be inverted
Yield curves almost always slope upward
9
Three Theories to Explain the Three Facts
Expectations theory explains the first two facts but not the third
Segmented markets theory explains fact three but not the first two
Liquidity premium theory combines the two theories to explain all three facts
10
Expectations Theory
The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond
Buyers of bonds do not prefer bonds of one maturity over another; they will not hold
any quantity of a bond if its expected return
is less than that of another bond with a different maturity
Bond holders consider bonds with different maturities to be perfect substitutes
11
Expectations Theory: Example
Let the c.
The document discusses various topics related to financial markets and interest rates, including different types of financial markets and institutions, how capital is transferred between savers and borrowers, factors that affect interest rates such as production opportunities and inflation, and risks associated with investing overseas such as country risk and exchange rate risk.
Value slides 2022_430102343b4e7f831172c529b654a6ed.pptxHafizArslan19
This document summarizes research on the value premium - the tendency for stocks with value characteristics like low price-to-book ratios to outperform growth stocks over the long run. It discusses several potential explanations for the value premium proposed in academic literature, including that investors extrapolate past growth too far into the future for growth stocks and are surprised by mean reversion for value stocks. The document also reviews evidence that investors predict near-term earnings accurately but overestimate longer-term growth, and that value stocks experience positive earnings surprises while growth stocks see negative surprises.
The Arbitrage Pricing Theory (APT) provides an alternative to the Capital Asset Pricing Model (CAPM) for estimating expected returns. The APT assumes returns are generated by multiple systematic risk factors rather than a single market factor. It allows for assets to be mispriced and does not require assumptions of a market portfolio or homogeneous expectations. Under the APT, the expected return of an asset is equal to the risk-free rate plus the product of each risk factor's premium and the asset's sensitivity to that factor.
Effects of dividends on common stock prices the nepalese evidencePankajKunwar3
presentation on effects of dividends on common stock prices in the nepelese evidence paper was was published by prof. rade shyam pradhan in the the excellence
This document summarizes research on the growth of the options market and strategies for using options to enhance portfolio returns. Some key points:
- Global equity derivatives trading volumes increased 11% in 2011, with equity derivatives making up 64% of total derivatives trading. Options volumes in the US rose 17% in 2011.
- Independent research finds continued growth in options usage, with 36-94% of financial advisors and 65% of institutions expecting to increase future usage.
- Options volumes have recently outpaced equity volumes, driven by more market participants and product diversity.
- Common strategies discussed include hedging, income, volatility, and pairs trades using options.
- Case studies demonstrate analyzing Greeks,
This document discusses factors that influence stock prices of industrial companies listed on the Indonesia Stock Exchange. It presents a literature review on debt ratio, price-earnings ratio, earnings per share, company size, and company value as independent variables that may predict stock price as the dependent variable. The document then describes the research methodology, which uses a quantitative multiple linear regression analysis of secondary data from 114 industrial companies to determine the relationship between the independent and dependent variables. The results of the analysis show that all four independent variables (debt ratio, price-earnings ratio, earnings per share, size) have a significant influence on stock price both simultaneously and partially, with earnings per share having the strongest influence. Conclusions are that companies should manage these
This document discusses how to value bonds and stocks. It defines bonds, how bond values are determined from present values of coupon payments and par value, and how bond prices are inversely related to market interest rates. It also discusses how to value common stocks based on present values of expected future dividends and capital gains, using dividend discount models for stocks with zero, constant, or differential growth. Growth opportunities can increase stock value if positive NPV projects are undertaken. The price-earnings ratio is also discussed.
This document discusses how to value bonds and stocks. It defines bonds, how bond values are determined from present values of coupon payments and par value, and how bond prices are inversely related to market interest rates. It also discusses how to value common stocks based on present values of expected future dividends and capital gains, using dividend discount models for stocks with zero, constant, or differential growth. Growth opportunities can increase stock value if positive NPV projects are undertaken. The price-earnings ratio is also discussed.
The document discusses various topics related to investing, including:
1) Compound interest and how it allows investments to grow exponentially over time through reinvestment of interest.
2) The three main asset classes - equities, fixed income, and cash equivalents - and how proper allocation between them can optimize returns while minimizing risk.
3) Different types of investments including stocks, bonds, mutual funds and their basic characteristics. Key factors like earnings, price-earnings ratios, and yields are discussed for evaluating investments.
Stock Prices valuation of IT Companies in India: An Empirical Study Dr.Punit Kumar Dwivedi
In this paper, we would like to answer the questions such as
Is it worthwhile investing in such software companies?
Will capital appreciation of software companies continue in the future?
It is important to analyze whether investors will be benefitted by investing in this software industry or whether software companies’ outperformance over other industries is just the temporary phase. Finally, we would like to suggest our recommendations over software industries whether investors should buy/sell/hold the stock of these companies based on our analysis.
This chapter discusses investing in stocks and the stock market. It covers topics such as how stocks are traded on exchanges and over-the-counter markets, methods for valuing stocks like the dividend discount and Gordon growth models, how the market sets stock prices, sources of error in valuations, important stock market indexes, investing in foreign stocks, and regulation of the stock market by the SEC.
This document provides an overview of options pricing and the Black-Scholes model. It defines what an option is and the different types of options. It then explains the components of an option's price, including intrinsic value and time value. The document outlines the key factors that affect an option's price. It introduces the Black-Scholes model for pricing options and lists the assumptions and inputs required. Steps for calculating standard deviation and adjusting for dividends are also provided. Two example questions are given at the end to demonstrate using the Black-Scholes formula to price a call and put option.
The document discusses capital asset pricing theory and portfolio theory. It introduces key concepts such as the efficient frontier, which shows the set of portfolios with the highest expected return for a given level of risk. It also discusses the Capital Asset Pricing Model (CAPM), which proposes that the expected return of an asset is determined by its sensitivity to non-diversifiable risk (beta). The CAPM suggests relationships like the security market line and capital market line. However, the CAPM faces empirical criticisms and its assumptions do not always hold in the real world. Alternative models like the Arbitrage Pricing Theory were developed that allow for multiple factors to influence returns.
This document presents research on analyzing the residential real estate markets in Gurgaon, India by comparing "forward" or under construction properties to "spot" or completed properties. The research aims to understand the relationship between the two markets, how investment returns vary between them, and what factors buyers consider when selecting properties. Key findings include that the spot and forward markets are co-integrated, with the spot market leading price discovery and information flowing from spot to forward. The value of invested equity generally increases over time for both markets due to price appreciation and repayment of debt. Buyers prioritize attributes like location, amenities, and reputation of the developer when selecting properties.
Capital Markets and the Pricing of RiskAhmedMinhas3
This document provides an overview of chapter 10 from a corporate finance textbook. It discusses key concepts related to risk and return, including probability distributions, expected return, variance, standard deviation, and historical returns of stocks and bonds. Examples are provided to demonstrate how to calculate expected return, standard deviation, and realized annual returns for stocks based on price and dividend data over a period of time. The learning objectives cover defining and applying common risk and return measures as well as explaining the relationship between risk and return.
A General Approach to Future Pricing.pptxAsadTahir16
The document discusses pricing models for future contracts. It describes the expectancy model, which states that futures prices are expected future spot prices. It also describes the cost of carry model, where the price is the spot price plus the net cost of carry, which includes financing costs, storage costs, and convenience yield. The relationship between spot and futures prices depends on factors like costs of carry and interest rates. As the delivery date approaches, futures prices converge to the spot price to avoid arbitrage opportunities. However, inherent risks and uncertainties remain due to changing future variables.
JUMPING RISK IN TAIWAN AND TAIEX OPTION RETURN IN TAIWAN ijcsit
With low-interest environment in recent years, investment of financial commodity was unable to meet the requirements of necessary paid by society. Therefore, the traditional financial tool were replacing with derivative financial commodity which were high risk, high lever, and high complex; including option, forward contract, futures, credit default swap, and collateralized debt obligations. Global Board Options Exchanges were founded in 1983 that S&PS00 (SPX) index option which launched by the Chicago Board Options Exchange (CBOE). Moreover CBOE was the option which target on trade index at the earliest, and CBOE was the most popular exchange with option trade. Taiwan Futures Exchange (TFE) launched Taiwan weighted index options (TXO) in December 2001 and, and launched stock options in 2003. Currently TXO was the most actively traded options market in Taiwan, but almost had no stock options trading volume due to the release of warrants market. However warrants market and individual stock options had higher homogeneous and better mobility to influence the stock options market. Although Taiwan options market started lately, develops quite fast, the option of Taiwan index was the sixth volume in the global select token name in 2013, that showed that Taiwan index options was a good target on the options-related research. Due to the globalization of financial markets, the single original market waved turn into the global storm which that affected financial asset prices were no longer continuous fluctuations, and it showed a leaps of change by the Butterfly Effect. Because the price process included continuity and discontinuity, the spread and jump process was more accurate than Brownian motion (BM). Currently the derivatives study biased on interest rate futures, foreign futures or foreign exchange futures options and Taiwan index futures options. By the way, the study about the jumping risks related to Taiwan index options effects is rare.
Chapter 03_What Do Interest Rates Mean and What Is Their Role in Valuation?Rusman Mukhlis
This chapter discusses interest rates and their role in valuation. It defines key terms like yield to maturity, which is the most accurate measure of interest rates. It examines how to measure and understand different interest rates, the distinction between real and nominal rates, and the relationship between interest rates and returns. It also covers how the concept of present value is used to evaluate debt instruments and how duration is used to measure interest rate risk.
This document provides an overview of how debt security yields vary and the factors that influence them. It discusses the following key points in 3 sentences:
Debt security yields are influenced by credit risk, liquidity, tax status, and term of maturity. Higher risk securities offer higher yields to attract investors. The term structure of interest rates defines the relationship between yield and term to maturity and can be affected by expectations of future interest rates, liquidity preferences, and segmented markets.
Similar to Apoorva Javadekar - My comments on pricing and timing of dividend (20)
Discover the Future of Dogecoin with Our Comprehensive Guidance36 Crypto
Learn in-depth about Dogecoin's trajectory and stay informed with 36crypto's essential and up-to-date information about the crypto space.
Our presentation delves into Dogecoin's potential future, exploring whether it's destined to skyrocket to the moon or face a downward spiral. In addition, it highlights invaluable insights. Don't miss out on this opportunity to enhance your crypto understanding!
https://36crypto.com/the-future-of-dogecoin-how-high-can-this-cryptocurrency-reach/
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
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This infographic explores the transformative power of Generative AI, a key driver of the 4th Industrial Revolution. Discover how Generative AI is revolutionizing industries, accelerating innovation, and shaping the future of work.
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Apoorva Javadekar - My comments on pricing and timing of dividend
1. On the Timing and Pricing of Dividends
Binsbergen, Brandt, Koijen
Presented by Apoorva Javadekar
Boston University, Class of EC 745
March 4, 2012
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 1 / 17
2. Introduction
Lucas(1978): Total wealth is the price of a claim to all future
consumption
Gordon(1962): Value of aggregate stock market equals sum of
discounted future dividends
Central Question: How to discount future cash flows to value an
asset today
Main Ingredients: Future Cash Flows and Discounting rates
These two ingredients might behave differently in short term versus
long term. Hence, it might be interesting to decompose the asset
prices in to short term component and long term component.
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 2 / 17
3. Paper Broadly
What does Paper do?
asset price = price of short term benefits + price of long term
benefits
Creates short term asset called ”dividend strips”: Paying dividends only
(No price risk)
Prices the asset using ’no arbitrage’ condition.
Studies Time series properties of prices
Why to study Short term prices
Recover discount rates implicit in asset prices as a function of maturity
Understand investor’s risk preferences as a function of maturity of the
asset
Study other time series properties of the short term and long term
components of the value of the asset
Derive some implications for other models
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 3 / 17
4. Model Broadly II: Conclusions
E(R), σ(R), Sharpe ratios are higher for short term leg of the asset
than corresponding statistics for asset itself
Beta of the short term assets (against market index) is around 0.5
CAPM α is around 10%. and does not vary much even when other
factors are added in regression
Short term asset returns are predictable.
Excess Volatility features for short term asset as well; Price vary
more than subsequent short term dividend realizations.
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 4 / 17
5. Basic Mechanism
Value of Equity: Let {Dt+i }∞
i=1 be the dividend process. Then
St =
∞
i=1
Et(Mt:t+i Dt+i ) (1)
where Mt:t+i = i
j=1 Mt+j
This just says that asset price is sum of discounted value of dividends.
Decomposition
St =
T
i=1
Et(Mt:t+i Dt+i ) +
∞
i=T+1
Et(Mt:t+i Dt+i ) (2)
Asset Value = Short term value + Long term value
Objective Find out the price of the short term benefits. Call it Vt,T
Vt,T =
T
i=1
Et(Mt:t+i Dt+i ) (3)
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 5 / 17
6. Pricing Strategy: Theory
Using Put - Call Parity (Augmented for Dividends)
ct,T + Xe−rt,T (T−t)
= pt,T + St − Vt,T (4)
This holds because St is cum - dividends and trading in options do
not give access to dividends. So for ’no arbitrage’ condition, we
need to consider ex-dividend price of stock.
Using Futures Contract: Let Ft,T be the futures price determined
at t for which one unit of stock will be delivered after T periods
Ft,T e−rt,T (T−t)
= St − Vt,T (5)
This holds because one can get ex - dividend stock at T by buying
futures today for which required cash is given by L.H.S
Both these relationships assume only ’No Arbitrage’ to hold.
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 6 / 17
7. Pricing Implementation: Data
Underlying Index: S&P 500.
Data Period: Jan 1996 - May 2009
Options Data: CBOE intra day Quotes and Trades on S&P 500 of
all options for which S&P 500 is an underlying
Index Values and Futures Values: From Tick Data Inc - Minute
level data available for index values and futures prices
Interest Rates: Collection of ZCB rates for various maturities. Zero
curve derived using LIBOR and EURODOLLAR futures
Dividends: S&P 500 returns data with and without distribution from
S&P Index services
Cash Div = (Differential returns) × lagged index value (6)
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 7 / 17
8. Pricing Implementation: Data Matching
Minute Level Matching: All the data matched on last trading day
of each month within a particular minute.
As options market closes 15 Minutes after the stock market, matching
ending quotes is biased.
Options data used as LEAPS data for longer maturities available
For a given Maturity;
1 fix some strike price
2 Get quotes on all call options matching these two parameters
3 For each call quote, find ’closest in time’ put quote with same
parameters
4 Keep a pair which has quotes ’closest in time’
5 Compute dividend price for given maturity for each such match
6 Repeat it for each available strike price.
V(for given maturity) = Median of all such prices
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 8 / 17
9. Dividend Steepner
Both the options and futures strategies require exposure to stock
index. Replicating stock index is costly
To avoid this problem, we can study price of dividends paid between
two futures dates: t < T1 < T2
Dividend Steepner exposes investor to only dividends between T1 and
T2 without replicating index.
Value of Steepner
Vt,T1,T2 = Vt,T2 − Vt,T1 (7)
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 9 / 17
10. Empirical Findings: Dividend Prices
Prices increase monotonically with maturities (does not violate
’No arbitrage’)
Prices drop during recessions: Expected growth of dividends drop
during recession and discount rate rises
Stationarity: Divide prices by Index values
1 Ratios for various maturities are strongly correlated
2 Ratio dropped in 2001 recession, increased in 2009 recession
3 Suggestive of the fact that current recession is long lasting (recession
affects index values more than div. prices)
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 10 / 17
11. Empirical Findings: Dividend Returns
Defining returns
Rt+1 =
V(t+1,T−1) + Dt+1
Vt,T
(8)
High returns: 14.40% annualised as against S&P 500 return of 5.9%
annulized
Higher volatility: Returns volatility = 7.9%, S&P 500 return
volatiltiy = 4.7%
Still results in higher Sharpe Ratios: almost twice
This corresponds to Duffie (2010): Lower SR for longer term
Treasuries
Beta of around 0.5 with market returns and CAPM α = 10%
Regression intercept does not change much even with additional
factors; (book to market etc). ⇒ Short term asset returns are not
explained by standard asset pricing models.
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 11 / 17
12. Empirical Findings: Dividend Returns Predictability
Dividend returns are mean reverting
Rt+1 = β0 + β1
V(t,T)
Dt
: Statistically significant with -ve sign (Table 6)
Expected returns and expected dividend growth are predictable
Expected returns are more persistent
Puzzle: High predictability and high volatility
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 12 / 17
13. Empirical Findings: Excess Volatility
Shiller: Prices more volatile than subsequent dividends ⇒ excess
volatility
Why? Discount fluctuate over time and long duration of stocks ⇒
high volatility in prices
But same characteristics observed for Short term prices (Figure 9)
Hence, explanation of excess volatility must explain both long term
and short term excess volatilities.
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 13 / 17
14. Prices in equilibrium Model: Lucas Economy
Basic model
∆(ln(ct+1)) = g + t+1, t+1 ∼ N(0, σ2
) (9)
k- period SDF
Mt:t+k = βk Ct+k
Ct
−γ
(10)
Price
Vt,t+k =
k
s=1
exp s ln β + s(1 − γ)g +
s
2
(1 − γ)2
σ2
(11)
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 14 / 17
15. Prices in equilibrium Model: Comparison
Model prices computed using same calibration as in the original papers
Prices and properties do not match with ’No Arbitrage’ prices
Reason: Shock structure in these models not specific to match short
term dividend prices
Habit Model (1999) and LLR Model (2004): Risk premium near
zero, σ(R), SR are lower
Rare Disaster Model: E(R) constant over maturities, volatility lower
for short term as compared to long term
Lettau and Watcher (2007): Matches with this model. Beta is also
well below 1
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 15 / 17
16. Robustness
Results hold more or less for alternative matching criterion:
moneyness, bid-ask spread etc
Results hold for futures contract strategy too
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 16 / 17
17. Comments on the paper
What I liked:
Robust, Market based story: Uses only ’No Arbitrage Condition’
Pricing in terms of liquid assets: Liquidity risk does not enter the
dividend prices
Potentially marketable security: (dividend steepner)
Contribution: Insight on excess volatility puzzle: need for joint
explanation
Few concerns:
Does out of money options affect the pricing?
Possibility of pricing individual dividend strips? discrete dividends
As dividend swaps are available: Do the ’No arbitrage prices matches
with market prices’?
Fail to understand what attracted the attention to the paper?
Presented by Apoorva Javadekar (Boston University, Class of EC 745)Pricing Dividends March 4, 2012 17 / 17