Multifactor Models Do Not Explain Deviations from the CAPM

A number of studies have presented evidence rejecting the validity of the Capital Asset Pricing Model (CAPM). This evidence has spawned research into possible explanations. These explanations can be divided into two main categories - the risk based alternatives and the nonrisk based alternatives. The risk based category includes multifactor asset pricing models developed under the assumptions of investor rationality and perfect capital markets. The nonrisk based category includes biases introduced in the empirical methodology, the existence of market frictions, or explanations arising from the presence of irrational investors. The distinction between the two categories is important for asset pricing applications such as estimation of the cost of capital. This paper proposes to distinguish between the two categories using ex ante analysis. A framework is developed showing that ex ante one should expect that CAPM deviations due to missing risk factors will be very difficult to statistically detect. In contrast, deviations resulting from nonrisk based sources will be easy to detect. Examination of empirical results leads to the conclusion that the risk based alternatives is not the whole story for the CAPM deviations. The implication of this conclusion is that the adoption of empirically developed multifactor asset pricing models may be premature.

Asset Pricing Models: Implications for Expected Returns and Portfolio Selection

Implications of factor-based asset pricing models for estimation of expected returns and for portfolio selection are investigated. In the presence of model mispricing due to a missing risk factor, the mispricing and the residual covariance matrix are linked together. Imposing a strong form of this link leads to expected return estimates that are more precise and more stable over time than unrestricted estimates. Optimal portfolio weights that incorporate the link when no factors are observable are proportional to expected return estimates, effectively using an identity matrix as a covariance matrix. The resulting portfolios perform well both in simulations and in out-of-sample comparisons.

When are Contrarian Profits Due to Stock Market Overreaction?

The profitability of contrarian investment strategies need not be the result of stock market overreaction. Even if returns on individual securities are temporally independent, portfolio strategies that attempt to exploit return reversals may still earn positive expected profits. This is due to the effects of cross-autocovariances from which contrarian strategies inadvertently benefit. We provide an informal taxonomy of return-generating processes that yield positive [and negative] expected profits under a particular contrarian portfolio strategy, and use this taxonomy to reconcile the empirical findings of weak negative autocorrelation for returns on individual stocks with the strong positive autocorrelation of portfolio returns. We present empirical evidence against overreaction as the primary source of contrarian profits, and show the presence of important lead-lag relations across securities.

Perceived Differences in the Management of Mental Health Patients in Remote and Rural Australia and Strategies for Improvement: Findings from a National Qualitative Study of Emergency Clinicians

Introduction. We aimed to describe perceptions of Australian emergency clinicians of differences in management of mental health patients in rural and remote Australia compared with metropolitan hospitals, and what could be improved. Methods. Descriptive exploratory study using semi-structured telephone interviews of doctors and nurses in Australian emergency departments (EDs), stratified to represent states and territories and rural or metropolitan location. Content analysis of responses developed themes and sub-themes. Results. Of 39 doctors and 32 nurses responding to email invitation, 20 doctors and 16 nurses were interviewed. Major themes were resources/environment, staff and patient issues. Clinicians noted lack of access in rural areas to psychiatric support services, especially alcohol and drug services, limited referral options, and a lack of knowledge, understanding and acceptance of mental health issues. The clinicians suggested resource, education and guideline improvements, wanting better access to mental health experts in rural areas, better support networks and visiting specialist coverage, and educational courses tailored to the needs of rural clinicians. Conclusion. Clinicians managing mental health patients in rural and remote Australian EDs lack resources, support services and referral capacity, and access to appropriate education and training. Improvements would better enable access to support and referral services, and educational opportunities

National review of school music education: Augmenting the diminished

This study included a literature review, call for submissions, site visits, national survey and curriculum mapping to determine the current quality and status of music education in Australian schools. It provides an examination of the challenges facing schools in providing music education and highlights opportunities for strengthening music education in schools

An Econometric Analysis of Nonsynchronous Trading

We develop a stochastic model of nonsynchronous asset prices based on sampling with random censoring. In addition to generalizing existing models of non-trading our framework allows the explicit calculation of the effects of infrequent trading on the time series properties of asset returns. These are empirically testable implications for the variances, autocorrelations, and cross-autocorrelations of returns to individual stocks as well as to portfolios. We construct estimators to quantify the magnitude of non-trading effects in commonly used stock returns data bases and show the extent to which this phenomenon is responsible for the recent rejections of the random walk hypothesis.

The Size and Power of the Variance Ratio Test in Finite Samples: A Monte Carlo Investigation

We examine the finite sample properties of the variance ratio test of the random walk hypothesis via Monte Carlo simulations under two null and three alternative hypotheses. These results are compared to the performance of the Dickey-Fuller t and the Box-Pierce Q statistics. Under the null hypothesis of a random walk with independent and identically distributed Gaussian increments, the empirical size of all three tests are comparable. Under a heteroscedastic random walk null, the variance ratio test is more reliable than either the Dickey-Fuller or Box-Pierce tests. We compute the power of these three tests against three alternatives of recent empirical interest: a stationary AR(1), the sum of this AR(1) and a random walk, and an integrated AR( 1). By choosing the sampling frequency appropriately, the variance ratio test is shown to be as powerful as the Dickey-Fuller and Box-Pierce tests against the stationary alternative, and is more powerful than either of the two tests against the two unit-root alternatives.

Econometric Models of Limit-Order Executions

This paper attempts to assess whether money can generate persistent economic" fluctuations in dynamic general equilibrium models of the business cycle. We show that a small" nominal friction in the goods market can make the response of output to monetary shocks large" and persistent if it is amplified by real wage rigidity in the labor market. We also argue that" given the level of real wage rigidity that is observed in developed countries nominal stickiness might be sufficient for money to produce economic fluctuations as persistent" as those observed in the data.

Detecting modification of biomedical events using a deep parsing approach

<p>Abstract</p> <p>Background</p> <p>This work describes a system for identifying event mentions in bio-molecular research abstracts that are either speculative (e.g. <it>analysis of IkappaBalpha phosphorylation</it>, where it is not specified whether phosphorylation did or did not occur) or negated (e.g. <it>inhibition of IkappaBalpha phosphorylation</it>, where phosphorylation did <it>not </it>occur). The data comes from a standard dataset created for the BioNLP 2009 Shared Task. The system uses a machine-learning approach, where the features used for classification are a combination of shallow features derived from the words of the sentences and more complex features based on the semantic outputs produced by a deep parser.</p> <p>Method</p> <p>To detect event modification, we use a Maximum Entropy learner with features extracted from the data relative to the trigger words of the events. The shallow features are bag-of-words features based on a small sliding context window of 3-4 tokens on either side of the trigger word. The deep parser features are derived from parses produced by the English Resource Grammar and the <it>RASP </it>parser. The outputs of these parsers are converted into the Minimal Recursion Semantics formalism, and from this, we extract features motivated by linguistics and the data itself. All of these features are combined to create training or test data for the machine learning algorithm.</p> <p>Results</p> <p>Over the test data, our methods produce approximately a 4% absolute increase in F-score for detection of event modification compared to a baseline based only on the shallow bag-of-words features.</p> <p>Conclusions</p> <p>Our results indicate that grammar-based techniques can enhance the accuracy of methods for detecting event modification.</p