Capital Asset Pricing Model Tests in a Term Structure Context (Classic Reprint) - Softcover

Inhaltsangabe

This book presents a study that develops and tests models to explain equilibrium rates of return on capital assets. The author extends the earlier Capital Asset Pricing Model (CAPM), which assumes probability distributions of rates of return on risky assets are stationary and the return on the riskless asset is constant, by introducing additional risk factors and state variables to account for unforeseen changes in the riskless rate or other unanticipated changes in the investors' Opportunity set due to shifting state variables. The author reinterprets Merton's ICAPM such that observed consumption per capita may be taken as an instrumental variable for unobserved and undefined state variables. Consumption beta is interpreted as a constant or varying parameter depending on the model and time period. The study finds consumption is superior to the observed market index as a measure of wealth, but consumption is not a superior measure of wealth compared to the traditional CAPM. The author concludes stochastic beta models do not perform better than the stable beta models in describing term structure with the data and time period used in this study.

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