Benchmark, relative return, and asset pricing

Abstract

In this note, we develop a simple asset pricing model using the relative return to a benchmark. The model makes no assumption on free-risk securities, equilibrium conditions, utility functions, diffusion processes, probability distributions, or return generating processes. Our main result indicates that the asset's expected return is equal to the expected return of the lowest-risk asset, plus a risk premium directly proportional to the covariance between the asset's excess return and the benchmark factor. This suggests that an asset pricing model can be built without restrictive assumptions. This also suggests that the classic CAPM can be viewed as a special case of our benchmark model.

A Statistical Model for Identifying Collusive Bidding Based on Historical Quotations

“…In the bidding process, business rating is usually calculated by the benchmark price method. Among them, the arithmetic average price of each bidder is taken as the price benchmark, and the business score of each bidder is calculated according to the difference between the price and the benchmark price [14]. This method can avoid the risk of winning bids at low prices and defective products, and is the most commonly used business score calculation method for large-scale or important material procurement [15].…”

El modelo de fijación de precios de activos de capital aplicado en grandes empresas

“…Los resultados tienen implicaciones importantes para el análisis de inversiones y la determinación del costo de capital. Bergeron (2022), en su artículo benchmark, relative return, and asset pricing, presenta un modelo simple de fijación de precios de activos que utiliza el rendimiento relativo de un punto de referencia, sin hacer suposiciones restrictivas sobre valores libres de riesgo, equilibrio, funciones de utilidad, procesos de difusión, distribuciones de probabilidad o procesos de generación de rendimiento. El resultado principal del modelo indica que el rendimiento esperado del activo es igual al rendimiento esperado del activo de menor riesgo más una prima de riesgo directamente proporcional a la covarianza entre el exceso de rendimiento del activo y el factor de referencia.…”

Using Three-factor and Five-factor Models to Explore the Impact of the Covid-19 on the US Stock Health Care Industry

“…However, if the research object is replaced by GEM market, the HML is a redundant factor, and the new model after excluding the book-to-market ratio factor has a stronger explanation, which may be caused by excessive speculation on the GEM [4]. Bergeron proved that the assumption that the return generation in the FF3 model is linear is not necessary, because the complete model can be derived only by considering that the return of the asset comes from the three factors assumed by the model [5]. The research subjects of Abd-Alla and Sobh chose the Egyptian Stock Exchange to test the validity of the FF3 model.…”