A Robust Capital Asset Pricing Model

Robust estimation in Capital Asset Pricing Model

Bian and Dickey (1996) developed a robust Bayesian estimator for the vector of regression coefficients using a Cauchy-type g-prior. This estimator is an adaptive weighted average of the least squares estimator and the prior location, and is of great robustness with respect to flat-tailed sample distribution. In this paper, we introduce the robust Bayesian estimator to the estimation of the Capi...

Robust Estimation and Forecasting of the Capital Asset Pricing Model*

A Two State Capital Asset Pricing Model

A famous model in nancial theory is the Capital Asset Pricing Model (CAPM). In this paper we propose a two state CAPM in which we assume that excess returns for the market and for a particular security are bivariate normally distributed. The parameters of the distribution are determined by the state of an unobserved stationary Markov chain. Two states represent two business regimes that are cha...

A Labor Capital Asset Pricing Model

We show that labor search frictions are an important determinant of the cross-section of equity returns. In the data, sorting firms by loadings on labor market tightness, the key statistic of search models, generates a spread in future returns of 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make optimal employment decisions under labor search fri...

The Consumption - Based Capital Asset Pricing Model

Arrow-Debreu Existence Result Let K be a normed vector lattice with positive cone K+ (see Schaefer (1974)). We consider an Arrow-Debreu (pure exchange) economy 9'= (?, e') in K, with m agents described by preference relations > i on K+ and initial endowments e' E K+. Throughout, we make the usual assumptions on preferences: each >i is reflexive, transitive, complete, convex, continuous, and str...