Conditional Nonlinear Stochastic Discount Factor Models as Alternative Explanations to Stock Price Momentum
Date of Award
Doctor of Philosophy
George C. Philippatos
Phillip R. Daves, Ramon DeGennaro, Mohammed Mohsin
Existing linear asset pricing models do not fully explain the abnormal profits associated with prior-return portfolios. In addition, existing nonlinear consumption-based models produce implausible risk aversion coefficient values when applied to priorreturn portfolios. Measures based upon production instead of consumption reduce residual errors and drive risk aversion coefficients towards plausible values. Augmenting the existing models with a new production-based marginal utility growth proxy, supplemented by a production-based consumption proxy not previously applied to price prior-return portfolios, can explain the abnormal profits associated with prior-return portfolios and yield plausible risk aversion coefficient values.
Moore, David Jonathan, "Conditional Nonlinear Stochastic Discount Factor Models as Alternative Explanations to Stock Price Momentum. " PhD diss., University of Tennessee, 2008.