You are here


Three essays on empirical asset pricing

Xiaoyan Zhang, 2002
Faculty Advisor: Robert J. Hodrick


The dissertation contains three chapters.

The first chapter (co-authored with Hodrick) evaluates the specification errors of several empirical asset pricing models that have been developed as potential improvements on the CAPM. We use the methodology of Hansen and Jagannathan (1997), and the test assets are the US 25 Fama-French (1993) equity portfolios sorted on size and book-to-market ratio, and the Treasury bill. We allow the parameters of each model's pricing kernel to fluctuate with the business cycle. While we cannot reject correct pricing for Campbell's (1996) model, stability tests indicate that the parameters may not be stable. A robustness test also indicates that none of the models correctly price returns that are scaled by the term premium.

The second chapter studies the cross-sectional pricing performances of several international asset pricing models. The comparison metric is the Hansen-Jagannathan distance, and the base assets are size and book-to-market portfolios from the US, the UK and Japan. When betas and risk premiums are constant over the business cycles, none of the models can pass the specification test. By allowing time-varying betas and risk premiums, most of the conditional models can capture the cross-sectional return spreads and can pass the test, because the base assets have different sensitivities to the time-varying risk premiums. The Fama-French factors are redundant in conditional models. Finally, exchange risk exposures contribute significantly to the international asset returns, and the conditional International CAPM with exchange risk performs the best. The market integration hypothesis is also supported.

The third chapter (coauthored with Cavaglia, Hodrick and Vardim) explores the ability of several international asset-pricing models to explain the average returns on a set of global industry portfolios. The general noisiness of the data makes it difficult to accurately estimate average returns. Thus, all of the international models are able to capture the cross-sectional industry return spreads. The methodology also results in an investment strategy that maximally exploits the benchmarks' mispricings. When there is no short-selling constraint, investing in the industry portfolios provides big diversification benefit, but the benefit becomes marginal when there is a short-selling

Doctoral Program News

Honigsberg featured in Ideas at Work

The August issue of Ideas at Work features research that doctoral candidate Colleen Honigsberg led in conjunction with Sharon Katz.

Read More about Colleen

Wazlawek featured in Ideas at Work

Abbie Wazlawek's joint research with Professor Daniel Ames is featured in the June 24th, 2014 edition of Ideas at Work

Read More about Abbie

Ethan Rouen featured in Ideas at Work

Ethan Rouen's joint research with Professor Dan Amiram is featured in the May 15th, 2014 edition of Ideas at Work

Read More about Abbie

Rivas Wins Fellowship

The PhD program is proud to congratulate Miguel Duro Rivas, who was awarded the Nasdaq Educational Foundation Doctoral Dissertation Fellowship.

Read More about Miguel

Wong wins Deloitte Fellowship

We are proud to announce that Yu Ting (Forester) Wong is one of the recipients of the 2014 Deloitte Foundation Doctoral Fellowship in Accounting.

Read More About Yu Ting >

The PhD Program Congratulates John Yao

PhD student John Yao was a finalist in the 2013 M&SOM (Manufacturing & Service Operations Management) student paper competition.

Read More About John >

Honigsberg Named Postdoctoral Fellow

The PhD program is proud to congratulate Colleen Honigsberg, who was named the Postdoctoral Fellow in Corporate Governance at the Millstein Center at Columbia Law School in October 2013

Read More about Colleen >


Application Deadlines

Master of Science in Marketing >

For Fall 2015 Entry:
Deadline: January 5th, 2015


Master of Science in Financial Economics

For Fall 2015 Entry:
Deadline: January 5th, 2015


Master of Science in Management Science and Engineering

For Fall 2014 Entry:
Early Decision: Jan 6, 2015
Regular Decision: Feb 15, 2015


Apply Now
Sept 2015

Deadline: 01/05/15

MS Marketing
Deadline: 01/05/15

MS Financial Economics
Deadline: 01/05/15


Check Application Status

Students listening to classroom lecture

Once you've submitted your application, you can login and track your status by using the link below.

Check Status