This paper derives an equilibrium capital asset pricing model (CAPM) in a market where asset prices can exhibit price jumps and price bubbles. We derive a generalized intertertemporal CAPM and consumption CAPM for these markets. The derived risk return relation differs from the classical results only in the characterization of the state price density, which depends on the existence of price bubbles, and in the number and quantity of systematic risk factors.

This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.

This paper derives an equilibrium capital asset pricing model (CAPM) in a market with trading constraints and asset price bubbles. The asset price processes are general semimartingales including Markov jump-diffusion processes as special cases, and the trading constraints considered include short sale restrictions, borrowing constraints, and margin requirements, among others. We derive a generalized intertertemporal CAPM and consumption CAPM for these markets. The implications for empirical testing are that additional systematic risk factors will exist in a market with trading constraints and price bubbles as contrasted with an otherwise equivalent unconstrained market with no price bubbles.

The problem addressed in this dissertation research was the inability of the single-factor capital asset pricing model (CAPM) to identify relevant risk factors that investors consider in forming their return expectations for investing in individual stocks. Identifying the appropriate risk factors is important for investment decision making and is pertinent to the formation of stocks' prices in the stock market. Therefore, the purpose of this study was to examine theoretical and empirical validity of the CAPM and to develop and test a multifactor model to address and resolve the empirical shortcomings of the single-factor CAPM. To verify the empirical validity of the standard CAPM and of the multifactor model, five hypotheses were developed and tested against historical monthly data for U.S. public companies. Testing the CAPM hypothesis revealed that the explanatory power of the overall stock market rate of return in explaining individual stock's expected rates of return is very weak, suggesting the existence of other risk factors. Testing of the other hypotheses verified that the implied volatility of the overall market as a systematic risk factor and the companies' size and financial leverage as nonsystematic risk factors are important in determining stock's expected returns and investors should consider these factors in their investment decisions. The findings of this research have important implications for social change. The outcome of this study can change the way individual and institutional investors as well as corporations make investment decisions and thus change the equilibrium prices in the stock market. These changes in turn could lead to significant changes in the resource allocation in the economy, in the economy's production capacity and production composition, and in the employment structure of the society.

Studienarbeit aus dem Jahr 2004 im Fachbereich BWL - Investition und Finanzierung, Note: 1,3, Helmut-Schmidt-Universität - Universität der Bundeswehr Hamburg, 19 Quellen im Literaturverzeichnis, Sprache: Deutsch, Abstract: Diese Arbeit befasst sich mit dem Capital Asset Pricing Model (CAPM), ein Kapitalmarktmodell, welches von John Lintner1, Jan Mossin2 und William F. Sharpe3, getrennt voneinander, entwickelt wurde. Als Grundlage dient die von William F. Sharpe 1964 im Journal of Finance verfasste Arbeit, die den Erfolgsbeitrag einer einzelnen Aktie bzw. eines einzelnen Wertpapiers in Abhängigkeit von dessen Risiko in einem gleichgewichtigen Kapitalmarkt abbildet. Das dargestellte Modell basiert auf den Annahmen eines vollkommenen Kapitalmarktes. Dies impliziert das Fehlen von in der Praxis anfallenden Transaktionskosten sowie Steuern und anderen Friktionen, wie z.B. Markteintrittsbarrieren. Weiterhin wird angenommen, dass die Wertpapiere beliebig teilbar sind. Es wird ein vollständiger Wettbewerb aller Marktteilnehmer zu Grunde gelegt, und somit ist es einem einzelnen Teilnehmer nicht möglich den Preis der Wertpapiere zu beeinflussen. Daneben stehen den Marktteilnehmern alle Informationen jederzeit kostenlos zur Verfügung, und alle Investoren verhalten sich rational, indem sie ihren erwarteten Nutzen gemäß maximieren. Weiterhin gilt es für das Verständnis des Modells anzumerken, dass Investoren nach nur zwei Kriterien ihre Anlageentscheidung treffen. Als Erfolgskriterium betrachten die Anleger den erwarteten Ertrag den eine Aktie innerhalb einer Periode erwirtschaftet. Als Risikokriterium wird die Standardabweichung, d.h. die Abweichung vom Erwartungswert nach beiden Seiten, angesehen. Ausgehend von der Problemstellung vor der Sharpe stand, wird kurz auf den damaligen Stand der Diskussion eingegangen und anschließend wird erörtert auf welche weiteren Annahmen sein Modell fußt. Im Weiteren wird das CAPM in seinen Grundzügen erklärt und anschließend kritisch betrach

Research Paper (undergraduate) from the year 2007 in the subject Business economics - Investment and Finance, grade: 1,0, University of Applied Sciences Berlin, course: Financial Management, language: English, abstract: In everything you do, or don’t do, there is a chance that something will happen that you didn’t count on. Risk is the potential for unexpected things to happen. Risk aversion is a common thing among almost all investors. Investors generally dislike uncertainty or risk and agree that a safe dollar is worth more than a risky one. Therefore, investors will have to be persuaded to take higher risk by the offer of higher returns. In this investment context, the additional compensation for taking on higher risk is a higher rate of return.Every investment has a risk element: The investor will always not be certainwhether the investment will be able to generate the required income. The degree of risk defers from industry to industry but also from company to company. It is not possible to eliminate the investment risk altogether but to reduce is. Nevertheless, often there remains a risky part. According to the degree of risk, the investor demands a corresponding rate of return that is, of course, higher than the rate of return of risk-free investments. Taking on a risk should be paid off. The Capital Asset Pricing Model (CAPM) is an economic model for valuing stocks, securities, derivatives and/or assets by relating risk and expected rate of return. CAPM is based on the idea that investors demand additional expected return if they are asked to accept additional risk.