Joint estimation of factor sensitivities and risk premia for the arbitrage pricing theory

Article Abstract:

The APT is represented as a multivariate regression model with across-equations restrictions. Both observed and unobserved (latent) macroeconomic factors are included, thus generalizing and unifying two previous strands of literature. Large portfolios representing unobserved factors are treated as endogenous, and nonlinear 3SLS estimates are shown to differ sharply from estimates that ignore this endogeneity. Using monthly stock returns and six factors, we cannot reject January effects. The following results are invariant with respect to the inclusion of January effects: we reject the CAPM in favor of the APT; however, we cannot reject the APT restrictions on the linear factor model. (Reprinted by permission of the publisher.)

Research, Arbitrage, Seasonal variations (Economics)

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Overreaction or fundamentals: some lessons from insiders' response to the Market Crash of 1987

Article Abstract:

This paper shows that (i) the Crash was a surprise to corporate insiders; (ii) insiders became buyers of stock in record numbers immediately following the Crash; (iii) stocks that declined more during the Crash were also purchased more by insiders; and (iv) stocks that were purchased more extensively by insiders during October 1987 showed larger positive returns in 1988. The overall evidence suggests that overreaction was an important part of the Crash. (Reprinted by permission of the publisher.)

Statistics, Insider trading in securities, Insider trading (Securities), Stock Market Crash, 1987

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