asset pricing zheng zhenlong price change: cash flow or discount rate? 06:49 1
TRANSCRIPT
![Page 1: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/1.jpg)
Asset Pricing
Zheng Zhenlong
Price change: cash flow or discount rate?
01:51
1
![Page 2: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/2.jpg)
Asset Pricing
Zheng ZhenlongWhy do prices vary so much?
![Page 3: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/3.jpg)
Asset Pricing
Zheng Zhenlong
![Page 4: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/4.jpg)
Asset Pricing
Zheng ZhenlongIntroduction
• 1970s view:Expected returns don’t move much over
time — stocks are unpredictable.Prices move on news of cashflow
(dividend).CAPM works pretty well.Beta derives from the covariance of
cashflows with market cashflows.
01:51
![Page 5: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/5.jpg)
Asset Pricing
Zheng ZhenlongIntroduction
• All are dramatically different now.1. Expected returns move a lot over time — stocks are predictable. (Long run, business cycle correlation)2. Prices move on news of discount rate changes.3. We understand the cross-section with multifactor models.
(a) A larger number of characteristics other than beta are associated with expected returns(b) To the extent we understand those patterns, expected returns line up with nonmarket betas
![Page 6: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/6.jpg)
Asset Pricing
Zheng ZhenlongIntroduction
4. Betas derive from the covariance of discount rates with market discount rates. 5. Facts are pushing us to the “risk premium” view of the world, as opposed to the “constant expected return, cashflow” view from the 1970s. 6. These are the facts underlying theoretical modeling.
![Page 7: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/7.jpg)
Asset Pricing
Zheng ZhenlongOld Facts
![Page 8: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/8.jpg)
Asset Pricing
Zheng ZhenlongNew View of facts
![Page 9: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/9.jpg)
Asset Pricing
Zheng Zhenlong
Why D/P forecasts long horizon returns?
![Page 10: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/10.jpg)
Asset Pricing
Zheng Zhenlong
Predictability of Dividend growth
• P/D “should” forecast a dividend rise. Price high relative to current dividends should mean that future dividends will be higher.
• Dividend growth is not predictable! The point estimates are the “wrong” sign!
![Page 11: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/11.jpg)
Asset Pricing
Zheng Zhenlong
Do “low” prices mean / reveal high returns?
![Page 12: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/12.jpg)
Asset Pricing
Zheng Zhenlong
“Predictability” ↔ time-varying expected returns
![Page 13: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/13.jpg)
Asset Pricing
Zheng ZhenlongInefficiency?
• Does this mean markets are “inefficient”? Is this an invitation to “buy low and sell high?”
• Not necessarily. Time varying risk premia are possible.
• Are expected returns higher in good times or in bad times? (Bad, why?) business-cycle related time-varying risk premium is certainly possible.
![Page 14: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/14.jpg)
Asset Pricing
Zheng Zhenlong
Campbell-Shiller linearization of the one-period return
• 小写字母代表大写字母的对数• Intuition: higher returns come from higher prices
(higher valuations p-d), lower initial prices, or higher dividends.
![Page 15: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/15.jpg)
Asset Pricing
Zheng Zhenlong
The Campbell-Shiller present value identity
• If both Δd and r are unforecastable, p−d is constant. If p-d varies at all, something must be forecastable. The fact that d-p varies means that we do not live in an iid world. (Plus no bubbles)
![Page 16: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/16.jpg)
Asset Pricing
Zheng Zhenlong
![Page 17: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/17.jpg)
Asset Pricing
Zheng ZhenlongA Pervasive Phenomenon
• Stocks. Dividend yields forecast returns, not dividend growth.
• Treasuries. A rising yield curve signals better 1-year returns for long-term bonds, not higher future interest rates. Fed fund futures signal returns, not changes in the funds rate.
• Bonds. Much variation in credit spreads over time and across firms or categories signals returns, not default probabilities.
• Foreign exchange. International interest rate spreads signal returns, not exchange rate depreciation.
• Houses. High price/rent ratios signal low returns, not rising rents or prices that rise forever.
![Page 18: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/18.jpg)
Asset Pricing
Zheng Zhenlong
![Page 19: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/19.jpg)
Asset Pricing
Zheng Zhenlong
Common element: business cycle
• low prices, high returns in recessions. High prices, low returns in booms
![Page 20: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/20.jpg)
Asset Pricing
Zheng Zhenlong
Multivariate Challenges: More variables
![Page 21: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/21.jpg)
Asset Pricing
Zheng Zhenlong
Understanding prices: short and long-run forecasts
• Cay:消费财富比率
![Page 22: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/22.jpg)
Asset Pricing
Zheng ZhenlongThe cross section
5
![Page 23: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/23.jpg)
Asset Pricing
Zheng ZhenlongValue effect and factor
![Page 24: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/24.jpg)
Asset Pricing
Zheng Zhenlong
Value (size, and bond factors)
![Page 25: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/25.jpg)
Asset Pricing
Zheng Zhenlong
The Multidimensional Challenge
(Market, value, size), momentum, accruals, equity issues, beta-arbitrage, credit risk, bond & equity market timing, carry trade, put writing, “liquidity provision,”...1. Which of these are independently important for E(Re )?(“multiple regression”)2. Does E(Re ) spread correspond to new factors?3. Do we need all the new factors? Or again, fewer factors thanE(Re ) characteristics?4. Why do prices move? –Long run.
How to approach such a highly multidimensional problem?
![Page 26: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/26.jpg)
Asset Pricing
Zheng Zhenlong
Asset Pricing on Characteristics/Uni…cation
1. Portfolio sorts are really cross-sectional regressions
![Page 27: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/27.jpg)
Asset Pricing
Zheng Zhenlong
Asset Pricing on Characteristics/Uni…cation
![Page 28: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/28.jpg)
Asset Pricing
Zheng Zhenlong
Theory classifi…cation
![Page 29: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/29.jpg)
Asset Pricing
Zheng ZhenlongConsumption/habits
![Page 30: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/30.jpg)
Asset Pricing
Zheng ZhenlongInvestment and Q
![Page 31: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/31.jpg)
Asset Pricing
Zheng ZhenlongChallenges for theories
Pervasive, coordinated risk premium in all markets, especially unintermediated
Mean returns are associated with comovement. Strong correlation with macroeconomics
![Page 32: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/32.jpg)
Asset Pricing
Zheng Zhenlong“Arbitrages”
![Page 33: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/33.jpg)
Asset Pricing
Zheng Zhenlong“Arbitrages”
![Page 34: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/34.jpg)
Asset Pricing
Zheng Zhenlong
Price and volume in the tech “bubble
![Page 35: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/35.jpg)
Asset Pricing
Zheng ZhenlongBonds : a cautionary tale�
![Page 36: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/36.jpg)
Asset Pricing
Zheng Zhenlong
Stocks (your endowment) in the crisis
![Page 37: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/37.jpg)
Asset Pricing
Zheng Zhenlong
Alphas, betas, and performance evaluation
• A hedge fund manager said, “‘Exotic beta’ is my alpha. I understand those systematic factors and know how to trade them. My clients don’t.”
![Page 38: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/38.jpg)
Asset Pricing
Zheng ZhenlongConclusion
Discount rates vary over time and across assets a lot more than you thought
Empirical: how. Theoretical: why. Applications: at all.
We’ve only started� How do you ask the right question?
![Page 39: Asset Pricing Zheng Zhenlong Price change: cash flow or discount rate? 06:49 1](https://reader035.vdocuments.net/reader035/viewer/2022081603/56649e105503460f94afc411/html5/thumbnails/39.jpg)
Asset Pricing
Zheng Zhenlong