The forecasting power of asset pricing models in futures markets

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1、TheforecastingpowerofassetpricingmodelsinfuturesmarketsAstudyoftheCAPM,three-factormodelandfour-factormodelMARBLECapstoneIBFinanceTopic2(CAP3108)Anna-LenaSchaar(I6001552)SchoolofBusinessandEconomicsStudy:InternationalBusinessMajor:FinanceSupervisor:AnnaWisniewskaTableofContentsI.Introducti

2、on……………………………………………………2II.LiteratureReview……………………………………………………4III.Appliedmodels……………………………………………………9a.CAPM……………………………………………………10b.Three-factormodel……………………………………………………11c.Four-factormodel……………………………………………………12IV.Data……………………………………………………13V.Methodology……………………………………………………14VI.Analysis……………

3、………………………………………17a.CAPM……………………………………………………18b.Three-factormodel……………………………………………………21c.Four-factormodel……………………………………………………24VII.Discussion……………………………………………………26VIII.Conclusion……………………………………………………31ListofReferences……………………………………………………33Appendix……………………………………………………37A)DatasummaryB)CAPMC)Th

4、ree-factormodel2D)AdjustedRE)Four-factormodelF)“Momentumfactor”G)“Mkt-RF”H)“SMB”1ComparingtheforecastingpoweroftheCapitalAssetPricingModel(CAPM),thethree-factormodelandthefour-factormodelwithregardtofuturescontractsandstocks,thisstudyfindsasubstantialdifferencebetweenthetwoassetclasses.For

5、futurescontractsthemodelscanbe,baseduponmonthlydata,orderedinthefollowingsequencestartingwiththeworst:CAPM,three-factormodel,andfour-factormodel.FortheannualdatatheCAPMandthree-factormodelarereverseinorder.Forthestocksthesameorderasfoundbythemonthlydatacanbeapplied.However,thereisasubstant

6、ialgapbetweentheexplanativepowerofthemodelsforfuturescontractsandstocks.Fortheformerassetclass,noneofthethreemodelsshouldbeusedforpricingpurposesandforthelatter,anymodelcanbechosenasallreportahighexplanativepower.Thisfindingiscontradictorytopreviousresearchpredictingahighsignificanceofthem

7、odelsconcerningfuturescontracts.Further,itisfoundthatstocksinvolveariskpremiawhilefuturescontractsonlyreportweakevidenceforriskpremia.Ingeneral,thereareseveralreasons,suchasthesampleorthetime-periodthatcouldexplaintheperformanceofallthreemodelspredictingfuture