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Asset Pricing Models: A Comparative Exercise Using Neural Networks to the Colombian Stock Market

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Listed:
  • Charle Londoño
  • Yaneth Cuan

Abstract

This study seeks to evaluate the effectiveness that variables like firm size and book-to-market ratio—present in the model of Fama and French—have to capture the average expected return on assets, as compared to macroeconomic fundamentals or the market index. For this purpose, we used an artificial neural network model (ANN), which departs from a structure of non-linear estimation to capture some irregularities that characterize financial markets. We found that the Fama and French model accounts for the conditions of the Colombian stock market better, which suggests the importance of microeconomic risk factors to explain asset returns.

Suggested Citation

  • Charle Londoño & Yaneth Cuan, 2011. "Asset Pricing Models: A Comparative Exercise Using Neural Networks to the Colombian Stock Market," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 75, pages 59-87.
  • Handle: RePEc:lde:journl:y:2011:i:75:p:59-87
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    More about this item

    Keywords

    asset pricing model; financial and macroeconomic variables; stock market; artificial neural networks;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D2 - Microeconomics - - Production and Organizations
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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