Li-B-Info-capital-asset-CAPMEJF2011.pdf (485.75 kB)
Information and capital asset pricing
journal contributionposted on 2011-12-01, 14:09 authored by Baibing LiBaibing Li, Xiangkang Yin
Investors in a market frequently update their diverse perceptions of the values of risky assets, thus invalidating the classic capital asset pricing model's (CAPM) assumption of complete agreement among investors. To accommodate information asymmetry and belief updating, we have developed an empirically testable information-adjusted CAPM, which states that the expected excess return of a risky asset/portfolio is solely determined by the information-adjusted beta rather than the market beta. The model is then used to analyze empirical anomalies of the classic CAPM, including a flatter relation between average return and the market beta than the CAPM predicts, a non-zero Jensen's alpha, insignificant explanatory power of the market beta, and size effect.
- Business and Economics
Published inEuropean Journal of Finance
Pages505 - 523
CitationLI, Y. and YIN, X., 2011. Information and capital asset pricing. The European Journal of Finance, 17 (7), pp. 505-523.
Publisher© Taylor and Francis
- AM (Accepted Manuscript)
NotesThis article was published in the European Journal of Finance [© Taylor and Francis]. The definitive version is available at: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495476