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Conferences

SESSION III-1 : ASSET PRICING (20/12/2007 à 14h00)

Ako Doffou (Sacred Heart University)

Information Asymmetries, Common Factors, and International Portfolio Choice

Auteurs : COVRIG Vincentiu ( Northridge), FONTAINE Patrice (Eurofidai Grenoble 2), JIMENEZ Sonia (CERAG INPG) SEASHOLES Marck (INSEAD)

Intervenants : JIMENEZ Sonia (Cerag and Grenoble Institute of Technology) sonia.jimenez@wanadoo.fr

Rapporteurs : PANOPOULOU Ekaterini (University Of Piraeus)

We propose a rational expectations equilibrium model in which agents are asymmetrically
informed about both asset-specific components of payoffs and common factors that
affect payoffs. The model produces closed-form solutions for asset prices and investor
holdings (positions). We apply the model to a study of international portfolio choice. Low
levels of asset-specific information, high levels of information about common (cross-border)
factors, and different factor loadings lead to wide dispersion in home bias measures. We
empirically analyze cross-border mutual fund holdings of 5,781 stocks from 21 developed
countries and find broad support for our model’s implications.

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Price Adjustment to News with Uncertain Precision

Auteurs : HAUTSCH Nikolaus (Humboldt-Univ of Berlin), HESS Dieter, MUELLER Christoph (Univ. Cologne) christoph.mueller@wiso.uni-koeln.de

Intervenants : MUELLER Christoph (University of Cologne)

Rapporteurs : BURLACU Radu (Université de Grenoble 2)

Bayesian learning provides a core concept of information processing in financial markets.
Typically, it is assumed that market participants perfectly know the quality of released news.
In practice, information precision is rarely disclosed and needs to be assessed by traders.
We extend the standard Bayesian model by including different precision signals that are
actually available to traders. When these signals indicate a higher precision, the model
predicts a stronger price reaction to news. Empirical tests based on intra-day T-bond
futures price reactions to U.S. employment announcements suggest that these precision
signals have a strong influence on the pricing mechanism of the market.

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Replicating the properties of hedge fund returns

Auteurs : PAPAGEORGIOU Nicolas, REMILLARD Bruno, HOCQUARD Alexandre (Hec Montreal) Email : nicolas.papageorgiou@hec.ca

Intervenants : PAPAGEORGIOU Nicolas (Hec Montreal)

Rapporteurs : HALL Thomas (Christopher Newport University)

In this paper, we implement a multi-variate extension of Dybvig (1988) Payoff Distribution
Model that can be used to replicate not only the marginal distribution of most hedge fund
returns but also their dependence with other asset classes. In addition to proposing ways
to overcome the hedging and compatibility inconsistencies in Kat and Palaro (2005), we
extend the results of Schweizer (1995) and adapt American options pricing techniques to
evaluate the model and also derive an optimal dynamic trading (hedging) strategy. The
proposed methodology can be used as a benchmark for evaluating fund performance, as
well as to replicate hedge funds or generate synthetic funds.

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