Modification of Capital Assets Pricing Model for a non-equilibrium capital market

About the authors:

Danila V. Ovechkin, Postgraduate Student, University of Tyumen; dv.ovechkin@mail.ru; ORCID: 0000-0001-9356-6254

Natalia B. Boldyreva, Dr. Sci. (Econ.), Professor, Department of Economics and Finance, Institute of Finance and Economics, University of Tyumen; eLibrary AuthorID, ORCID, ResearcherID, naboldyreva@yandex.ru

Abstract:

This article analyzes the process of making investment decisions using a Capital Assets Pricing Model (CAPM). The CAPM describes an economy in equilibrium: an investor, who uses the CAPM, believes, that demand is equal to supply at any time, and that the observed interest rate can be used in the process of making correct investment decisions. However, real markets can be in disequilibrium, where investors’ decisions might be erroneous.

This article aims to solve this problem by improving the CAPM in order to avoid model risk. It shows correct required return, which allows its using in a non-equilibrium capital market. The statistical data of the Moscow Stock Exchange and the Bank of Russia have served as the source of information. Testing of the new model has shown its efficiency.

The research has employed the methods of system analysis, modeling and mathematical statistic as well. The study has showed that model risk can be eliminated. Any investor who willing to use the improved CAPM will get better results compared to if they do not.

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