Handbook of the Economics of Finance

Introduction to the Series

Preface

VOLUME 2B Financial Markets and Asset Pricing

Chapter 12. Advances in Consumption-Based Asset Pricing: Empirical Tests

1 Introduction

2 Consumption-Based Models: Notation and Background

3 GMM and Consumption-Based Models

4 Euler Equation Errors and Consumption-Based Models

5 Scaled Consumption-Based Models

6 Asset Pricing with Recursive Preferences

7 Stochastic Consumption Volatility

8 Asset Pricing with Habits

9 Asset Pricing with Heterogeneous Consumers and Limited Stock Market Participation

10 Conclusion

References

Chapter 13. Bond Pricing and the Macroeconomy

1 Introduction

2 A Factor Model

3 No-Arbitrage Restrictions

4 The Variation of Yields with the Macroeconomy: US Evidence

5 Modeling Risk Premia

6 New Keynesian Models

7 Concluding Comments

References

Chapter 14. Investment Performance: A Review and Synthesis

1 Introduction

2 The Stochastic Discount Factor (SDF) Framework

3 Performance Measures

4 Implementation Issues and Empirical Examples

5 Fund Managers’ Incentives and Investor Behavior

6 Conclusions

References

Chapter 15. Mutual Funds

1 Introduction

2 Issues with Open-End Funds

3 Closed-End Funds

4 Exchange-Traded Funds (ETFs)

5 Conclusion

References

Chapter 16. Hedge Funds

1 The Hedge Fund Business Model—A Historical Perspective

2 Empirical Evidence of Hedge Fund Performance

3 The Risk in Hedge Fund Strategies

4 Where Do Investors Go From Here?

4.2 Risk Management and a Tale of Two Risks

References

Chapter 17. Financial Risk Measurement for Financial Risk Management

1 Introduction

2 Conditional Portfolio-Level Risk Analysis

3 Conditional Asset-Level Risk Analysis

4 Conditioning on Macroeconomic Fundamentals

5 Concluding Remarks

References

Chapter 18. Bubbles, Financial Crises, and Systemic Risk

1 Introduction

2 A Brief Historical Overview of Bubbles and Crises

3 Bubbles

4 Crises

5 Measuring Systemic Risk

6 Conclusion

References

Chapter 19. Market Liquidity—Theory and Empirical Evidence

1 Introduction

2 Theory

3 Empirical Evidence

4 Conclusion

References

Chapter 20. Credit Derivatives

1 Introduction

2 Risk-Neutral Default Probability Estimates

3 Physical Default Probability Estimates

4 Credit Default Swaps

5 Collateralized Debt Obligations

6 Credit Derivatives and the Crisis

7 Conclusions

References

Chapter 21. Household Finance: An Emerging Field

1 The Rise of Household Finance

2 Facts About Household Assets and Liabilities

3 Household Risk Preferences and Beliefs: What Do We Know?

4 Household Portfolio Decisions, from Normative Models to Observed Behavior

5 Household Borrowing Decisions

6 Conclusion

References

Chapter 22. The Behavior of Individual Investors

1 The Performance of Individual Investors

2 Why do Individual Investors Underperform?

3 The Disposition Effect: Selling Winners and Holding Losers

4 Reinforcement Learning

5 Attention: Chasing the Action

6 Failure to Diversify

7 Are Individual Investors Contrarians?

8 Conclusion

References

Chapter 23. Risk Pricing over Alternative Investment Horizons

1 Introduction

2 Stochastic Discount Factor Dynamics

3 Cash-Flow Pricing

4 Market Restrictions

5 Conclusions

References

Index