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THE USE AND THE RELIABILITY OF THE CAPITAL ASSET PRICING MODEL AS A MEANS OF SHARE VALUATION

ByIOANNIS CHADOLIAS

The Capital Asset Pricing Model ( is a multidimensional model which can be used in the pricing procedure of many risky assets. One of these dimensions where we try to approach is the share valuation process. Our starting point is the risk-adjusted rate of return valuation formula where after careful transformations we obtain three testable regression equations. The first one is a regression equation of the form "P actual on P predicted". The evidence do not support the CAPM in most cases. The second one is a regression equation of the form "next period's cash payoff on today's price and on today's price adjusted for a risk factor, that is, beta". This specification suffers by multicollinearity and the log-transformation is necessary. The newly specified model do not suffer by multicollinearity and gives results half in favour of the CAPM and half against it.

Details

Publication Date
Oct 1, 2011
Language
Greek
Category
Business & Economics
Copyright
All Rights Reserved - Standard Copyright License
Contributors
By (author): IOANNIS CHADOLIAS

Specifications

Format
PDF

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