Rene Garcia | Université de Montréal (original) (raw)

Papers by Rene Garcia

We derive new bounds and distance measures for stochastic discount factors (SDFs) that generalize... more We derive new bounds and distance measures for stochastic discount factors (SDFs) that generalize the original variance bounds and distance of Hansen and Jagannathan (1991, 1997) and higher moment bounds of Snow (1991). These generalized measures are suitable to analyze nonlinearities in asset pricing models and trading strategies. They imply nonlinear admissible SDFs that provide a more robust discounting than the positive linear SDFs used in many asset pricing empirical applications. We illustrate the empirical usefulness of these new discount factors by revisiting the admissibility of consumption-based asset pricing models, examining the information structure embedded in industry and Fama and French portfolios, and evaluating the performance of hedge funds.

L'Actualité économique

RÉSUMÉ Dans cet article, nous faisons un survol des modèles d’évaluation des actifs financiers ét... more RÉSUMÉ Dans cet article, nous faisons un survol des modèles d’évaluation des actifs financiers étudiés dans le contexte des marchés boursiers en émergence. Nous soulignons qu’il est plus facile de prévoir les rendements et leur variabilité pour de tels marchés que pour ceux des pays développés, et nous essayons de vérifier si ceci peut être expliqué par l’existence de mesures prévisibles du risque et des primes de risque. À cet égard, nous insistons sur l’importance des tests de changement structurel et des tests diagnostiques pour vérifier si les relations sont stables dans le temps et si des facteurs importants n’ont pas été oubliés. Ces tests sont d’autant plus importants dans le contexte d’un environnement économique et politique d’une plus grande instabilité. Nous terminons par une analyse de l’intégration de ces marchés boursiers en émergence au marché mondial et décrivons un modèle qui permet de capter l’évolution de cette intégration à travers le temps.

Journal of Financial Econometrics, 2017

Page 1. A Consumption CAPM with a Reference Level* René Garcia Université de Montréal ... the ben... more Page 1. A Consumption CAPM with a Reference Level* René Garcia Université de Montréal ... the benchmark consumption the agent has in mind when deciding his risk-taking behavior, Et[St+h] = Et[Ct+h], for all h ≥ 0. This formulation leaves open two possibilities. Either ...

Working Papers, Feb 1, 2005

Journal of Econometrics, 2010

In this paper, we present an estimation procedure which uses both option prices and high-frequenc... more In this paper, we present an estimation procedure which uses both option prices and high-frequency spot price feeds to estimate jointly the objective and risk-neutral parameters of stochastic volatility models. The procedure is based on a method of moments that uses analytical ...

Review of Derivatives Research, Apr 24, 2011

We evaluate the investment performance of hedge funds using an asset pricing model that is charac... more We evaluate the investment performance of hedge funds using an asset pricing model that is characterized by a piecewise-linear stochastic discount factor, and which we estimate using the generalized method of moments by minimizing the Hansen–Jagannathan distance. Our results show that, once non-linearities and public information are taken into account, there is only evidence of positive performance for the overall

... Author Info. René Garcia Eric Ghysels () Maral Kichian ... Contact details of provider: Posta... more ... Author Info. René Garcia Eric Ghysels () Maral Kichian ... Contact details of provider: Postal: 2020 rue University, 25e tage, Montr al, Qu c, H3A 2A5 Phone: (514) 985-4000 Fax: (514) 985-4039 Email: Web page: http://www.cirano.qc.ca/ More information through EDIRC. ...

This paper studies the impact of financial market structure on investment decisions by firms usin... more This paper studies the impact of financial market structure on investment decisions by firms using company panel data from six countries: Germany and Japan, where borrower-lender relationships are more of a long-term nature, Canada, France, United Kingdom, and United States, where financial markets tend to favour short-term relationships. Market imperfections between lenders and borrowers should be reduced in financial Systems

Asymétrie Information, Liquidity Constraints and Investment : An International Comparison. This p... more Asymétrie Information, Liquidity Constraints and Investment : An International Comparison. This paper studies the impact of financial market structure on investment décisions by firms using company panel data from six countries : Germany and Japan, where borrower-lender relationships are more of a long-term nature, * Nous tenons à remercier le Fonds pour la Formation de Chercheurs et l'Aide à la

This paper surveys recent developments in the theory of option pricing. The emphasis is on the in... more This paper surveys recent developments in the theory of option pricing. The emphasis is on the interplay between option prices and investors' impatience and their aversion to risk. The traditional view, steeped in the risk-neutral approach to derivative pricing, has been that these preferences play no role in the determination of option prices. However, the usual lognormality assumption required to obtain preference-free option pricing formulas is at odds with the empirical properties of financial assets. The lognormality assumption is easily reconcilable with those properties by the introduction of a latent state variable whose values can be interpreted as the states of the economy. The presence of a covariance risk with the state variable makes option prices depend explicitly on preferences. Generalized option pricing formulas, in which preferences matter, can explain several well-known empirical biases associated with preference-free models such as that of Black and Scholes (...

Journal of Econometrics, 2015

ABSTRACT The relationship between conditional volatility and expected stock market returns, the s... more ABSTRACT The relationship between conditional volatility and expected stock market returns, the so-called risk-return trade-off, has been studied at high- and low-frequency. We propose an asset pricing model with generalized disappointment aversion preferences and short- and long-run volatility risks that captures several stylized facts associated with the risk-return trade-off at short and long horizons. Writing the model in Bonomo et al. (2011) at the daily frequency, we aim at reproducing the moments of the variance premium and realized volatility, the long-run predictability of cumulative returns by the past cumulative variance, the short-run predictability of returns by the variance premium, as well as the daily autocorrelation patterns at many lags of the and of the variance premium, and the daily cross-correlations of these two measures with leads and lags of daily returns. By keeping the same calibration as in this previous paper, we ensure that the model is capturing the first and second moments of the equity premium and the risk-free rate, and the predictability of returns by the dividend ratio. Overall adding generalized disappointment aversion to the Kreps-Porteus specification improves the fit for both the short-run and the long-run risk-return trade-offs.

We derive new bounds and distance measures for stochastic discount factors (SDFs) that generalize... more We derive new bounds and distance measures for stochastic discount factors (SDFs) that generalize the original variance bounds and distance of Hansen and Jagannathan (1991, 1997) and higher moment bounds of Snow (1991). These generalized measures are suitable to analyze nonlinearities in asset pricing models and trading strategies. They imply nonlinear admissible SDFs that provide a more robust discounting than the positive linear SDFs used in many asset pricing empirical applications. We illustrate the empirical usefulness of these new discount factors by revisiting the admissibility of consumption-based asset pricing models, examining the information structure embedded in industry and Fama and French portfolios, and evaluating the performance of hedge funds.

L'Actualité économique

RÉSUMÉ Dans cet article, nous faisons un survol des modèles d’évaluation des actifs financiers ét... more RÉSUMÉ Dans cet article, nous faisons un survol des modèles d’évaluation des actifs financiers étudiés dans le contexte des marchés boursiers en émergence. Nous soulignons qu’il est plus facile de prévoir les rendements et leur variabilité pour de tels marchés que pour ceux des pays développés, et nous essayons de vérifier si ceci peut être expliqué par l’existence de mesures prévisibles du risque et des primes de risque. À cet égard, nous insistons sur l’importance des tests de changement structurel et des tests diagnostiques pour vérifier si les relations sont stables dans le temps et si des facteurs importants n’ont pas été oubliés. Ces tests sont d’autant plus importants dans le contexte d’un environnement économique et politique d’une plus grande instabilité. Nous terminons par une analyse de l’intégration de ces marchés boursiers en émergence au marché mondial et décrivons un modèle qui permet de capter l’évolution de cette intégration à travers le temps.

Journal of Financial Econometrics, 2017

Page 1. A Consumption CAPM with a Reference Level* René Garcia Université de Montréal ... the ben... more Page 1. A Consumption CAPM with a Reference Level* René Garcia Université de Montréal ... the benchmark consumption the agent has in mind when deciding his risk-taking behavior, Et[St+h] = Et[Ct+h], for all h ≥ 0. This formulation leaves open two possibilities. Either ...

Working Papers, Feb 1, 2005

Journal of Econometrics, 2010

In this paper, we present an estimation procedure which uses both option prices and high-frequenc... more In this paper, we present an estimation procedure which uses both option prices and high-frequency spot price feeds to estimate jointly the objective and risk-neutral parameters of stochastic volatility models. The procedure is based on a method of moments that uses analytical ...

Review of Derivatives Research, Apr 24, 2011

We evaluate the investment performance of hedge funds using an asset pricing model that is charac... more We evaluate the investment performance of hedge funds using an asset pricing model that is characterized by a piecewise-linear stochastic discount factor, and which we estimate using the generalized method of moments by minimizing the Hansen–Jagannathan distance. Our results show that, once non-linearities and public information are taken into account, there is only evidence of positive performance for the overall

... Author Info. René Garcia Eric Ghysels () Maral Kichian ... Contact details of provider: Posta... more ... Author Info. René Garcia Eric Ghysels () Maral Kichian ... Contact details of provider: Postal: 2020 rue University, 25e tage, Montr al, Qu c, H3A 2A5 Phone: (514) 985-4000 Fax: (514) 985-4039 Email: Web page: http://www.cirano.qc.ca/ More information through EDIRC. ...

This paper studies the impact of financial market structure on investment decisions by firms usin... more This paper studies the impact of financial market structure on investment decisions by firms using company panel data from six countries: Germany and Japan, where borrower-lender relationships are more of a long-term nature, Canada, France, United Kingdom, and United States, where financial markets tend to favour short-term relationships. Market imperfections between lenders and borrowers should be reduced in financial Systems

Asymétrie Information, Liquidity Constraints and Investment : An International Comparison. This p... more Asymétrie Information, Liquidity Constraints and Investment : An International Comparison. This paper studies the impact of financial market structure on investment décisions by firms using company panel data from six countries : Germany and Japan, where borrower-lender relationships are more of a long-term nature, * Nous tenons à remercier le Fonds pour la Formation de Chercheurs et l'Aide à la

This paper surveys recent developments in the theory of option pricing. The emphasis is on the in... more This paper surveys recent developments in the theory of option pricing. The emphasis is on the interplay between option prices and investors' impatience and their aversion to risk. The traditional view, steeped in the risk-neutral approach to derivative pricing, has been that these preferences play no role in the determination of option prices. However, the usual lognormality assumption required to obtain preference-free option pricing formulas is at odds with the empirical properties of financial assets. The lognormality assumption is easily reconcilable with those properties by the introduction of a latent state variable whose values can be interpreted as the states of the economy. The presence of a covariance risk with the state variable makes option prices depend explicitly on preferences. Generalized option pricing formulas, in which preferences matter, can explain several well-known empirical biases associated with preference-free models such as that of Black and Scholes (...

Journal of Econometrics, 2015

ABSTRACT The relationship between conditional volatility and expected stock market returns, the s... more ABSTRACT The relationship between conditional volatility and expected stock market returns, the so-called risk-return trade-off, has been studied at high- and low-frequency. We propose an asset pricing model with generalized disappointment aversion preferences and short- and long-run volatility risks that captures several stylized facts associated with the risk-return trade-off at short and long horizons. Writing the model in Bonomo et al. (2011) at the daily frequency, we aim at reproducing the moments of the variance premium and realized volatility, the long-run predictability of cumulative returns by the past cumulative variance, the short-run predictability of returns by the variance premium, as well as the daily autocorrelation patterns at many lags of the and of the variance premium, and the daily cross-correlations of these two measures with leads and lags of daily returns. By keeping the same calibration as in this previous paper, we ensure that the model is capturing the first and second moments of the equity premium and the risk-free rate, and the predictability of returns by the dividend ratio. Overall adding generalized disappointment aversion to the Kreps-Porteus specification improves the fit for both the short-run and the long-run risk-return trade-offs.