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

Tyumen State University Herald. Social, Economic, and Law Research


Release:

2019, Vol. 5. №1

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


For citation: Ovechkin D. V., Boldyreva N. B. 2019. “Modification of Capital Assets Pricing Model for a non-equilibrium capital market”. Tyumen State University Herald. Social, Economic, and Law Research, vol. 5, no 1, pp. 131-143. DOI: 10.21684/2411-7897-2019-5-1-131-143

About the authors:

Danila V. Ovechkin, Master Student, Financial and Economic Institute, University of Tyumen; dv.ovechkin@mail.ru

Natalia B. Boldyreva, Dr. Sci. (Econ.), Professor, Department of Finance, Currency and Credit, 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.

References:

  1. Brighem E. F., Gapensky L. C. 2004. Intermediate Financial Management in 2 vols. Translated from English by V. V. Kovalev. Vol. 1. Saint Petersburg: Ekonomicheskaya shkola. [In Russian]
  2. Zaostrovtsev A. P. 2007. “Austrian school of economic thought”. Vestnik Udmutskogo universiteta, no 2, pp. 69-78. [In Russian]
  3. Kosov N. S., Satalkina N. I., Terekhova Yu. O. 2015. Macroeconomics. Moscow: INFRA-M. [In Russian] DOI: 10.12737/8034
  4. Kostyuk V.N. 2014. “Nonequilibrium behavior of financial markets”. Proceedings of ISA RAN, vol. 64, no 1, pp. 36-44. [In Russian]
  5. Crouhy M., Galai D., Mark R. M. 2015. The Essentials of Risk Management. Translated from English. Moscow: Yurayt. [In Russian]
  6. The official site of the Central Bank of the Russian Federation. Accessed 25 November 2018. http://www.cbr.ru/statistics/?PrtId=dkfs [In Russian]
  7. Smith V. 2008. Experimental Economics. Translated from English by R. M. Nureev. Moscow: IRISEN; Mysl. [In Russian]
  8. Thaler R. 2017. Misbehaving. The Making of Behavioral Economics. Translated from English. Moscow: Eksmo. [In Russian]
  9. Teplova T. V., Selivanova N. V. 2007. “Empirical study of the applicability of the DCAPM model in emerging markets”. Corporate Finances, no 3, pp. 5-23. [In Russian]
  10. Fedorova E. A., Sivak A. R. 2012. “Comparison of CAPM and Fama-French models on the Russian stock market”. Fondovyi rynok, no 42, pp. 42-48. [In Russian]
  11. Hayek F. 2008. Prices and Production and Other Works: F. A. Hayek on Money, the Business Cycle, and the Gold Standard. Translated from English by G. Sapov. Chelyabinsk: Sotsyum. [In Russian]
  12. Sharp W. F., Alexander G. D., Bailey D. V. 2018. Investments. Translated from English. Moscow: INFRA-M. [In Russian]
  13. Shostak F.V. 2004. “In defense of fundamental analysis: criticizing the efficient market hypothesis”. Prostranstvo ekonomiki, no 2, pp. 16-26. [In Russian]
  14. Fama E. F., French K. R. 2016. “Dissecting anomalies with a five-factor model”. Review of Financial Studies, vol. 29, no 1, pp. 69-103. DOI: 10.1093/rfs/hhv043
  15. Fama E. F., French K. R. 1993. “Common risk factors in the returns on stocks and bonds”. Journal of Financial Economics. vol. 33, no 1, pp. 3-56. DOI: 10.1016/0304-405X(93)90023-5
  16. Fama E. F., French K. R. 2004. “The capital asset pricing model: theory and evidence”. The Journal of Economic Perspectives, vol. 18, no 3, pp. 25-46. DOI: 10.1257/0895330042162430
  17. Garrison R. W. 2001. Time and Money: The Macroeconomics of Capital Structure. New York: Routledge. DOI: 10.4324/9780203208083
  18. Sharpe W. 1991. “Capital asset prices with and without negative holdings”. The Journal of Finance, vol. 46, no 2, pp. 489–509. DOI: 10.1111/j.1540-6261.1991.tb02671.x
  19. Tobin J. 1969. “A general equilibrium approach to monetary theory”. Journal of Money, Credit and Banking, vol. 1, no 1, pp. 15–29. DOI: 10.2307/1991374
  20. Zaremba A., Czapkiewicz A. 2017. “Digesting anomalies in emerging European markets: a comparison of factor pricing models”. Emerging Markets Review, vol. 31, pp. 1-15. DOI: 10.1016/j.ememar.2016.12.002