The Distortion in Prices Due to Passive Investing

2021 ◽  
Author(s):  
Shmuel Baruch ◽  
Xiaodi Zhang
Keyword(s):  
Asset Pricing ◽  
Private Information ◽  
Asset Prices ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Conditional Capm ◽  
Asset Pricing Model ◽  
Ex Post ◽  
Passive Investing

In the capital asset pricing model (CAPM), it is ex post optimal to index. To examine the implications of market indexing, we develop a conditional CAPM with costless private information in which some investors are, for exogenous reasons, ex ante indexers. We show that, as more nonindexers become indexers, the price efficiency of stocks diminishes, asset prices comove, and the statistical fit (measured by R2) of the CAPM regression decreases. We also report asset prices at the limit, when 100% of the investors are market indexers. This paper was accepted by Tyler Shumway, finance.

scholarly journals Extension of the Capital Asset Pricing Model to Non-normal Dependence Structures

2007 ◽  
Vol 37 (1) ◽  
pp. 35-52
Author(s):  
Mark Johnston
Keyword(s):  
Asset Pricing ◽  
Asset Prices ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Marginal Distributions ◽  
Asset Pricing Model ◽  
Discount Factors ◽  
Stochastic Discount Factors ◽  
Normal Copula

The Capital Asset Pricing Model arises in an economy where agents have exponential utility functions and aggregate consumption is normally distributed, and gives the prices of assets with payoffs which are jointly normal with consumption. Such assets have normal marginal distributions and have dependence with consumption characterised by a normal copula. Wang has derived a transform which extends the CAPM by allowing pricing of assets in such an economy which have non-normal marginal distributions but still are normal-copula with consumption.Here we set out the stochastic discount factors corresponding to this version of the CAPM and to Wang’s transform, and show how to calculate stochastic discount factors and hence asset prices for assets whose dependence with consumption is non-normal. We show that the impact of dependency structure on asset prices is significant.

Примјена модела вредновања капиталне активе у функцији одређивања очекиваних приноса предузећа на тржишту капитала Републике Српске // Application of Capital Asset Pricing Model in the function of determination of expected yield of companies in the capital markets Republic of Srpska

2018 ◽  
Vol 14 (24) ◽  
pp. 191
Author(s):  
Драган Јањић
Keyword(s):  
Asset Pricing ◽  
Asset Prices ◽  
Market Equilibrium ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Financial Instrument ◽  
Asset Pricing Model

Резиме: Након што је Хери Маркович (енгл. Harry Markowitz) поставио прве темеље развоја портфолио теорије, Вилиам Шарп (енгл. William Sharpe), Џон Линтнер (енгл. John Lintner) и Јан Мосин (енгл. Jan Mossion) су почетком 60–их година 20. вијека развили модел вредновања капиталне активе (енгл. Capital Asset Pricing Model - САРМ). Први пут га је представио Вилиам Шарп објављивањем рада под називом „Модел вредновања капитала: теорија тржишне равнотеже у условима ризика” (енгл. Capital asset prices: a theory of market equilibrium under conditions of risk), који је 1990. године добио Нобелову награду за економију. Модел вредновања капиталне активе омогућава прецизно предвиђање односа између ризика и приноса одговарајућег финансијског инструмента. На развијеним тржиштима капитала инвеститори га често користе приликом израчунавања очекиване стопе приноса одговарајућег финансијског инструмента. Такође, модел се може користити и у друге сврхе, а све у циљу да инвеститорима олакша доношење важних пословних одлука. Иако модел није емпиријски потврђен и подложан је критикама појединих аутора, његова примјена је широка, искључиво због прецизног одређивања односа између ризика и приноса појединих финансијских инструмената и довољне тачности за многе важне примјене.Summary: When is Harry Markowitz made the frst foundations of the development of portfolio theory, William Shape, John Lintner and Jan Mossion in the early 60s of the 20th century are developed a Capital Asset Pricing Model - CAPM. The first time it was presented by William Shape, publication work entitled „Capital asset prices: a theory of market equilibrium under conditions of risk”, which in 1990 won the Nobel Prize for economy. Capital Asset Pricing Model allows accurate prediction of the relationship between risk and yield adequate financial instrument. In developed market equity investors often used this model when calculating the expected return of the corresponding financial instrument. Also, the model can also be used for other purposes, and in order to facilitate the investors making important business decisions. Although the model is not empirically verified and it is the subject of critiques by some authors, its use is broad because of precise determination of risk and yield relation in financial instruments and his appropriate accuracy.

scholarly journals The Conditional Capital Asset Pricing Model Revisited: Evidence from High-Frequency Betas

2020 ◽  
Vol 66 (6) ◽  
pp. 2474-2494 ◽  
Author(s):  
Fabian Hollstein ◽  
Marcel Prokopczuk ◽  
Chardin Wese Simen
Keyword(s):  
Asset Pricing ◽  
High Frequency ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Cross Sectional ◽  
Conditional Capm ◽  
Asset Pricing Model ◽  
Daily Data

When using high-frequency data, the conditional capital asset pricing model (CAPM) can explain asset-pricing anomalies. Using conditional betas based on daily data, the model works reasonably well for a recent sample period. However, it fails to explain the size anomaly as well as three out of six of the anomaly component excess returns. Using high-frequency betas, the conditional CAPM is able to explain the size, value, and momentum anomalies. We further show that high-frequency betas provide more accurate predictions of future betas than those based on daily data. This result holds for both the time-series and the cross-sectional dimensions. This paper was accepted by Karl Diether, finance.

scholarly journals Extension of the Capital Asset Pricing Model to Non-normal Dependence Structures

2007 ◽  
Vol 37 (01) ◽  
pp. 35-52 ◽  
Author(s):  
Mark Johnston
Keyword(s):  
Asset Pricing ◽  
Asset Prices ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Marginal Distributions ◽  
Asset Pricing Model ◽  
Discount Factors ◽  
Stochastic Discount Factors ◽  
Normal Copula

The Capital Asset Pricing Model arises in an economy where agents have exponential utility functions and aggregate consumption is normally distributed, and gives the prices of assets with payoffs which are jointly normal with consumption. Such assets have normal marginal distributions and have dependence with consumption characterised by a normal copula. Wang has derived a transform which extends the CAPM by allowing pricing of assets in such an economy which have non-normal marginal distributions but still are normal-copula with consumption.Here we set out the stochastic discount factors corresponding to this version of the CAPM and to Wang’s transform, and show how to calculate stochastic discount factors and hence asset prices for assets whose dependence with consumption is non-normal. We show that the impact of dependency structure on asset prices is significant.

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