A learning-augmented approach to pricing risk in South Africa

Jacques Peeperkorn and Yudhvir Seetharam ()
Additional contact information
Jacques Peeperkorn: University of the Witwatersrand
Yudhvir Seetharam: University of the Witwatersrand

Eurasian Business Review, 2016, vol. 6, issue 1, No 7, 117-139

Abstract: Abstract Through application of state-space modelling, the asset pricing model is re-explored. The result is an asset pricing model which tracks the evolution of investor probability beliefs and learning through a Kalman filter. This behaviourally inspired model shows marked improvement over a traditional asset pricing model, with pricing errors being reduced by as much as 41 % over a 16 year period using South African equities data. We find that investors tend to price long-run risk whilst being notably influenced by exposure to lagged market performance. Together, these findings lend support to the hypothesis that investors tend to price risk as a dynamic learning process in an emerging market.

Keywords: Kalman filter; Asset pricing; Behavioural finance; Emerging markets (search for similar items in EconPapers)
JEL-codes: C44 C53 C58 D03 G12 G15 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40821-015-0038-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurasi:v:6:y:2016:i:1:d:10.1007_s40821-015-0038-9

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40821

DOI: 10.1007/s40821-015-0038-9

Access Statistics for this article

Eurasian Business Review is currently edited by Marco Vivarelli

More articles in Eurasian Business Review from Springer, Eurasia Business and Economics Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().