Browsing by Author "Chandorkar, Pankaj Avinash"
Now showing 1 - 4 of 4
Results Per Page
Sort Options
Item Open Access The determinants of UK Equity Risk Premium(Cranfield University, 2016-10) Chandorkar, Pankaj Avinash; Poshakwale, Sunil S.Equity Risk Premium (ERP) is the cornerstone in Financial Economics. It is a basic requirement in stock valuation, evaluation of portfolio performance and asset allocation. For the last decades, several studies have attempted to investigate the relationship between macroeconomic drivers of ERP. In this work, I empirically investigate the macroeconomic determinants of UK ERP. For this I parsimoniously cover a large body of literature stemming from ERP puzzle. I motivate the empirical investigation based on three mutually exclusive theoretical lenses. The thesis is organised in the journal paper format. In the first paper I review the literature on ERP over the past twenty-eight years. In particular, the aim of the paper is three fold. First, to review the methods and techniques, proposed by the literature to estimate ERP. Second, to review the literature that attempts to resolve the ERP puzzle, first coined by Mehra and Prescott (1985), by exploring five different types of modifications to the standard utility framework. And third, to review the literature that investigates and develops relationship between ERP and various macroeconomic and market factors in domestic and international context. I find that ERP puzzle is still a puzzle, within the universe of standard power utility framework and Consumption Capital Asset Pricing Model, a conclusion which is in line with Kocherlakota (1996) and Mehra (2003). In the second paper, I investigate the impact of structural monetary policy shocks on ex-post ERP. More specifically, the aim of this paper is to investigate the whether the response of UK ERP is different to the structural monetary policy shocks, before and after the implementation of Quantitative Easing in the UK. I find that monetary policy shocks negatively affect the ERP at aggregate level. However, at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of Quantitative Easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the Bank of England’s monetary policy before and after the monetary stimulus. In the third paper I examine the impact of aggregate and disaggregate consumption shocks on the ex-post ERP of various FTSE indices and the 25 Fama-French style value-weighted portfolios, constructed on the basis of size and book-to-market characteristics. I extract consumption shocks using Structural Vector Autoregression (SVAR) and investigate its time-series and cross-sectional implications for ERP in the UK. These structural consumption shocks represent deviation of agent’s actual consumption path from its theoretically expected path. Aggregate consumption shocks seem to explain significant time variation in the ERP. At disaggregated level, when the actual consumption is less than expected, the ERP rises. Durable and Semi-durable consumption shocks have a greater impact on the ERP than non-durable consumption shocks. In the fourth and final paper I investigate the impact of short and long term market implied volatility on the UK ERP. I also examine the pricing implications of innovations to short and long term implied market volatility in the cross-section of stocks returns. I find that both the short and the long term implied volatility have significant negative impact on the aggregate ERP, while at sectoral level the impact is heterogeneous. I find both short and long term volatility is priced negatively indicating that (i) investors care both short and long term market implied volatility (ii) investors are ready to pay for insurance against these risks.Item Open Access The impact of monetary policy shocks on the Equity Risk Premium before and after the quantitative easing in the United Kingdom(2016-12-29) Poshakwale, Sunil S.; Chandorkar, Pankaj AvinashThe authors investigate the impact of structural monetary policy shocks on ex-post equity risk premium (ERP) of aggregate and sectoral FTSE indices and 25 Fama-French style value-weighted portfolios. They find that monetary policy shocks negatively affect the ERP but at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of quantitative easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the BoE’s policy before and after the monetary stimulus.Item Open Access Implied volatility and the cross section of stock returns in the UK(Elsevier, 2019-01-14) Poshakwale, Sunil S.; Chandorkar, Pankaj Avinash; Agarwal, VineetThe paper examines the relationship and the cross-sectional asset pricing implications of risk arising from the innovations in the short and the long-term implied market volatility on excess returns of the FTSE100 and the FTSE250 indices and the 25 value-weighted Fama-French style portfolios in the UK. Findings suggest that after controlling for valuation, macroeconomic, leading economic and business cycle indicators, returns exhibit a strong negative relationship with the innovations in both the short and the long-term implied market volatility. The cross-sectional regression provides new evidence that changes in both short and long-term implied market volatility are significant asset pricing factors with negative prices of risk, which suggests that (i) investors care about ex-ante volatility and (ii) they are willing to pay for insurance for future uncertainty.Item Open Access A systematic review of the determinants and the behaviour of equity risk premium(Cranfield University, 2013-08) Chandorkar, Pankaj Avinash; Poshakwale, Sunil S.Understanding the Equity Risk Premium (ERP) and the factors affecting it is cardinal to financial economics, particularly to equity research analysts, domestic and international institutional investors and financial economist. Since the seminal work of Mehra and Prescott (1985) there has been an exponential rise in the research explaining the reasons for ERP puzzle. This review, systematically, investigates the literature related to ERP in four key dimensions. The first dimension is regarding the issues related to different techniques of estimating the ERP. The second dimension is regarding the studies that explain the reasons of existence of the ERP puzzle by making modifications to the preference structures. The third is regarding the macroeconomic variables that help in predicting ERP and the fourth deals with studies that are conducted in the international context. In addition to this, this review meticulously captures some important limitations of the existing literature regarding the estimation of ERP and identifies the domestic and international determinants of ERP, in particular the UK ERP and proposes novel future directions of research. These future research directions have two important implications for my PhD. The first is the academic contribution that predominantly comes from methodological contribution of estimating the ERP. The second is the practical contribution that comes mainly from identifying the unique set of variables (UK domestic and international), which are of prime importance to the domestic and foreign institutional investors because of the financial crisis of 2008-2009 and which should affect the UK ERP.