A New Look at the Capital Asset Pricing Model

Blume, Marshall E.; Friend, Irwin

doi:10.1111/j.1540-6261.1973.tb01342.x

Cited by 375 publications

(169 citation statements)

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“…Numerous empirical studies test the model, on the assumption that beta is the sole explanatory variable with a positive and linear relation to asset return, yet results are inconclusive. Several early empirical studies (Black et al, 1972;Blume and Friend, 1973;Fama and McBeth, 1973) provide support for the CAPM. Later studies, however, are more critical, citing evidence of anomalies and questioning the validity of the assumptions (Roll, 1977;Basu, 1977Basu, , 1983Stattman, 1980;Banz, 1981;DeBondt and Thaler, 1985;Rosenberg et al, 1985;Bhandari, 1988;Jegadeesh and Titman, 1993;Cohen et al, 2002;Titman et al, 2004).…”

Section: Literature Reviewmentioning

confidence: 99%

Rationalizing the value premium in emerging markets

Ebrahim

Girma

Shah

et al. 2014

Journal of International Financial Markets, Institutions and Mo

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(2014) 'Rationalizing the value premium in emerging markets.', Journal of international nancial markets, institutions and money., 29 . pp. 51-70. Further information on publisher's website:http://dx.doi.org/10.1016/j.int n.2013.11.005Publisher's copyright statement: NOTICE: this is the author's version of a work that was accepted for publication in Journal of International Financial Markets, Institutions and Money. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be re ected in this document. Changes may have been made to this work since it was submitted for publication. Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-pro t purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. Rationalizing the Value Premium in Emerging MarketsAbstract: We reconfirm the presence of value premium in emerging markets. Using the Brazil-Turkey-India-China (BTIC) grouping during a period of substantial economic growth and stock market development, we attribute the premium to the investment patterns of glamour firms. We conjecture based on empirical evidence that glamour firms hoard cash, which delays undertaking of growth options, especially in poor economic conditions. Whilst this helps to mitigate business risk, it lowers market valuations and drives down expected returns. Our evidence supports arguments that the value premium is explained by economic fundamentals rather than a risk factor that is common to all firms.JEL Classifications: G110 (Portfolio Choice; Investment Decisions), G120 (Asset Pricing).

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Section: Literature Reviewmentioning

confidence: 99%

Rationalizing the value premium in emerging markets

Ebrahim

Girma

Shah

et al. 2014

Journal of International Financial Markets, Institutions and Mo

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“…A few years later, more formal empirical tests are conducted to assess the model's performance. The results indicate a positive cross-sectional relation between beta and average return, but the relation is too flat (see, e.g., Black, Jensen, and Scholes (1972), Miller and Scholes (1972), Fama and MacBeth (1973), and Blume and Friend (1973)). 3 1 However, over the last four decades, a large number of studies show that firm characteristics and risk factors such as firm size, value-to-price ratios, past returns, and liquidity have significant predictive power for average stock returns, while market beta has no power.…”

Section: Introductionmentioning

confidence: 99%

Dynamic Conditional Beta Is Alive and Well in the Cross-Section of Daily Stock Returns

2012

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper investigates the significance of dynamic conditional beta in predicting the cross-sectional variation in expected stock returns. The results indicate that the time-varying conditional beta is alive and well in the cross-section of daily stock returns. Portfolio-level analyses and firm-level cross-sectional regressions indicate a positive and significant relation between dynamic conditional beta and future returns on individual stocks. An investment strategy that goes long stocks in the highest conditional beta decile and shorts stocks in the lowest conditional beta decile produces average returns and alphas of 8% per annum. These results are robust to controls for size, book-tomarket, momentum, short-term reversal, liquidity, co-skewness, idiosyncratic volatility, and preference for lottery-like assets. Terms of use: Documents inJEL classification code: G10, G11, C13

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“…Similarly, it can be shown that for efficient portfolios equations (7) and (8) are equal to CL's equations (20) and (21) is the residual variance associated with equation (2). Equation (14) indicates that the estimated Jensen's performance measure is correlated with its estimated risk proxv unless R,.…”

mentioning

confidence: 99%

“…Equation (1) can be rewritten in an ex post model [see Jensen (1968) (2) can be summed over n and averaged to obtain: Since 6 and (R -R f ) are independently distributed, the truncated distribution of 8 will also be independent of the distribution of (R -R f ).…”

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confidence: 99%

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The Effects of the Sample Size, the Investment Horizon and Market Conditions on the Validity of Composite Performance Measures: A Generalization

Chen

Lee

1986

Management Science

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The authors would like to express their appreciation to the referees and the associate editor for their helpful comments. The remaining errors, of course, are our responsibility. ABSTRACTIn our previous study, the empirical relationship between Sharpe's performance measure and its risk proxy has been shown to be dependent on the sample size, the investment horizon and the market conditions. This paper generalizes this important result to include Treynor's and Jensen's performance measures.In addition, it is shown that the relationship between the estimated Sharpe's measure and its risk proxy is a special case of the relationship between the estimated Treynor's measure and its risk measure. Moreover, the conventional sample estimate of ex-ante Treynor's measure is biased.The ranking of mutual fund performance using the biased estimate is not an unbiased ranking as implied by the ex-ante Treynor's measure.

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A New Look at the Capital Asset Pricing Model

Cited by 375 publications

References 7 publications

Rationalizing the value premium in emerging markets

Rationalizing the value premium in emerging markets

Dynamic Conditional Beta Is Alive and Well in the Cross-Section of Daily Stock Returns

The Effects of the Sample Size, the Investment Horizon and Market Conditions on the Validity of Composite Performance Measures: A Generalization

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