Coherent-Price Systems and Uncertainty-Neutral Valuation

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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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

ACTA ECONOMICA ◽

10.7251/ace1624191j ◽

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.

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The Distortion in Prices Due to Passive Investing

Management Science ◽

10.1287/mnsc.2021.4114 ◽

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.

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

Astin Bulletin ◽

10.2143/ast.37.1.2020797 ◽

2007 ◽

Vol 37 (01) ◽

pp. 35-52 ◽

Cited By ~ 2

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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A Surprising Development: Tests of the Capital Asset Pricing Model and the Efficient Market Hypothesis in Turkey's Securities Markets

SSRN Electronic Journal ◽

10.2139/ssrn.271890 ◽

2001 ◽

Cited By ~ 2

Author(s):

Kurt Kurt Dew

Keyword(s):

Asset Pricing ◽

Efficient Market Hypothesis ◽

Capital Asset Pricing Model ◽

Capital Asset Pricing ◽

Securities Markets ◽

Pricing Model ◽

Capital Asset ◽

Efficient Market ◽

Asset Pricing Model

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Freedom Indices and Capital Asset Pricing Model: Some Malaysian Evidence

International Journal of Management, Finance and Accounting ◽

10.33093/ijomfa.2020.1.1.1 ◽

2020 ◽

Vol 1 (1) ◽

pp. 1-21

Author(s):

Ying Tay Lee ◽

Devinaga Rasiah ◽

Ming Ming Lai

Keyword(s):

Human Rights ◽

Asset Pricing ◽

Stock Returns ◽

Firm Size ◽

Explanatory Power ◽

Least Square ◽

Press Freedom ◽

Capital Asset Pricing ◽

Capital Asset ◽

Cross Sectional

Human rights and fundamental freedoms such as economic, political, and press freedoms vary widely from country to country. It creates opportunity and risk in investment decisions. Thus, this study is carried out to examine if the explanatory power of the model for capital asset pricing could be improved when these human rights movement indices are included in the model. The sample for this study comprises of 495 stocks listed in Bursa Malaysia, covering the sampling period from 2003 to 2013. The model applied in this study employed the pooled ordinary least square regression estimation. In addition, the robustness of the model is tested by using firm size as a controlled variable. The findings show that market beta as well as the economic and press freedom indices could explain the cross-sectional stock returns of the Malaysian stock market. By controlling the firm size, it adds marginally to the explanation of the extended CAP model which incorporated economic, political, and press freedom indices.

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