In this paper we propose a new approach to estimating the systematic risk (the beta of an asset) in a capital asset pricing model (CAPM). The proposed method is based on a wavelet multiscaling approach that decomposes a given time series on a scale-by-scale basis. At each scale, the wavelet variance of the market return and the wavelet covariance between the market return and a portfolio are ca...

Market risk of an asset or portfolio is recognized through beta in Capital Asset Pricing Model (CAPM). Traditional estimation techniques emerge poor results when beta in CAPM assumed to be dynamic and follows auto regressive model. Kalman Filter (KF) can optimally estimate dynamic beta where measurement noise covariance and state noise covariance are assumed to be known in a state-space framewo...

This paper shows how differences across countries of 1) inflation rates, 2) consumption baskets of investors, and 3) investment opportunity sets of investors matter when one applies capital asset pricing models in an international setting. In particular, the fact that countries differ is shown to affect the portfolio held by investors, the equilibrium expected returns of risky assets, and the f...

This paper presents a test of multi-period asset pricing models using quarterly Philippine data. Using a consumption-based asset-pricing model, the study finds the rate of time preference to be 5.20 percent (on an annual basis). The estimated risk aversion coefficient of 0.043 seems to be on the low side when compared with estimates for other countries. Hansen's J-test finds favorable evidence ...

Considerable attention has recently been given to general equilibrium models of the pricing of capital assets. Of these, perhaps the best known is the mean-variance formulation originally developed by Sharpe (1964) and Treynor (1961), and extended and clarified by Lintner (1965a; 1965b), Mossin (1966), Fama (1968a; 1968b), and Long (1972). In addition Treynor (1965), Sharpe (1966), and Jensen (...

For one–period projects under certainty, the notion of Net Present Value (NPV) formally translates the notion of economic profit, where the discount rate is the cost of capital. Under uncertainty, the cost of capital is the expected rate of return of an equivalent-risk alternative that the investor might undertake and is often found by making recourse to the Capital Asset Pricing Model. This pa...

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...

Futures on fresh farmed salmon traded at the Fish Pool market in Norway are analyzed context of Capital Asset Pricing Model (CAPM) and a corresponding three-factor model where contracts separated based their maturities. Looking into 1 month; 6 months 12 contracts, we find that all alphas most betas statistically insignificant. We conclude CAPM equilibrium condition holds Salmon futures prices m...

A balance sheet structure including fixed assets, net working capital and risky long-term debt leads to a model for option pricing of the firm’s equity. Each of the financial components constitutes a source of risk. A hedge based on three distinct options and the stock enables risk neutral valuation and avoids the problems of lack of tradability of the assets and market incompleteness reflected...

In the Capital Asset Pricing Model (CAPM), beta coefficient is a very important parameter to be estimated. The most commonly used estimating methods are the Ordinary Least Squares (OLS) and some Robust Regression Techniques (RRT). However, these traditional methods make strong as sumptions which are unrealistic. In addition, The OLS method is very sensitive to extreme observations, while the RR...