This paper develops a behavioural asset pricing model in which traders are not fully rational as is commonly assumed the literature. The derived underpinned by notion that agents’ preferences affected their degree of optimism or pessimism regarding future market states. It characterized representation consistent with Capital Asset Pricing Model, augmented bias yields simple and intuitive econom...

In this paper we test for the inclusion of the bid-ask spread in the consumption CAPM, in the UK stock market over the time period of 1980-2000. Two econometric models are used; first, Fisher’s (1994) asset pricing model is estimated by GMM, and secondly, the VAR approach proposed by Campbell and Shiller is extended to include the bid-ask spread. Overall the statistical tests are unable to reje...

The present paper sets out to underline passive portfolio management on the Romanian capital market starting from the Capital Asset Pricing Model (CAPM) derived from the efficient market hypothesis, with no assumptions about the beliefs or preferences of investors. The efficient market hypothesis says that a speculator with limited resources cannot beat a particular index by a substantial facto...

This article investigates international stock market integration in largest (based on nominal GDP and purchasing power parity GDP) four developed namely USA, EMU, Japan and UK and two Asian emerging namely China and India international stock markets over the period June 1994 to June 2009. To model stock market integration we estimate a dynamic version of international capital asset pricing mode...

Emerging markets provide a formidable challenge to current asset pricing theory. The reason that emerging market do not obey standard asset pricing paradigms can be traced to the lack of complete market integration of many of these markets. Importantly, to understand both the cross-section of expected returns as well as the evolution of expected returns through time in these markets, it is nece...

One of the most important developments of modern finance is the Capital Asset Pricing Model (CAPM) of Sharpe, Lintner and Mossin. Although the model has been the subject of several academic papers, it is still exposed to theoretical and empirical criticisms. The CAPM is based on Markowitz’s (1959) mean variance analysis. Markowitz demonstrated that rational investors would hold assets, which of...

Most tests of asset pricing models address only the pricing predictions – perhaps because the portfolio choice predictions are obviously wrong. But how can asset-pricing theory be right if the portfolio choice theory on which it rests is wrong? This work builds and observes experimental markets in which risky and riskless assets are traded. Risk aversion is a robust phenomenon in experimental s...

It should not be surprising that in times of international monetary instability, there is renewed interest in the definition and analysis of exchange risk. One analytical framework that seems particularly suited to the analysis of the problem of exchange risk is the well-known Capital Asset Pricing Model (CAPM). CAPM is a two parameter, single period model focusing on the expected return of an ...

This paper presents a closed-form solution to the portfolio optimization problem where an agent wishes to maximize expected terminal wealth, trading continuously between a risk-free bond and a risky stock following Stressed-Beta dynamics specified in Fouque and Tashman (2010). The agent has a finite horizon and a utility of the Constant Relative Risk Aversion type. The model for stock dynamics ...