On the Time-Varying Structure of the Arbitrage Pricing Theory using the Japanese Sector Indices
This paper is the first study to examine the time instability of the APT in the Japanese stock market. In particular, we measure how changes in each risk factor affect the stock risk premiums to investigate the validity of the APT over time, applying the rolling window method to Fama and MacBeth's (1973) two-step regression and Kamstra and Shi's (2023) generalized GRS test. We summarize our empirical results as follows: (1) the changes in monetary policy by major central banks greatly affect the validity of the APT in Japan, and (2) the time-varying estimates of the risk premiums for each factor are also unstable over time, and they are affected by the business cycle and economic crises. Therefore, we conclude that the validity of the APT as an appropriate model to explain the Japanese sector index is not stable over time.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Price Impact on Term Structure
We introduce a first theory of price impact in presence of an interest-rates term structure. We explain how one can formulate instantaneous and transient price impact on bonds with different maturities, including a cross…
Rational Finance Approach to Behavioral Option Pricing
When pricing options, there may be different views on the instantaneous mean return of the underlying price process. According to Black (1972), where there exist heterogeneous views on the instantaneous mean return, this…
Arbitrage Opportunities in CDS Term Structure: Theory and Implications for OTC Derivatives
Absence-of-Arbitrage (AoA) is the basic assumption underpinning derivatives pricing theory. As part of the OTC derivatives market, the CDS market not only provides a vehicle for participants to hedge and speculate on the…
ManagementGeometric Arbitrage Theory and Market Dynamics Reloaded
We have embedded the classical theory of stochastic finance into a differential geometric framework called Geometric Arbitrage Theory and show that it is possible to: --Write arbitrage as curvature of a principal fibre b…
On robust fundamental theorems of asset pricing in discrete time
This paper is devoted to a study of robust fundamental theorems of asset pricing in discrete time and finite horizon settings. Uncertainty is modelled by a (possibly uncountable) family of price processes on the same pro…