Capital Asset Pricing Model Integrating both Firm and Market

Topics:
Investment and Capital Markets
Tags:
Asset Management,
Business Operations,
Capital Asset Pricing Model,
Factor,
Operational Planning,
Yale University
Source:
Yale University

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Overview: This paper proposes a theoretical framework to incorporate a firm's intrinsic value and market-trading value into asset pricing model. It shows that asset return can be decomposed into two components. The first component, called the firm factor, is related to the output of a firm and is proportional to return on equity. The second component, termed the market factor, is the relative change of P/B ratio and is related to market return. It then develops a new capital asset pricing model that integrates both the firm factor and the market factor.

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Format: PDF | Size: 769KB | Date: Jul 2003 | Pages: 31

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