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Multifactor Models regarding Intertemporal Capital Asset Pricing Model (ICAPM) Assumptions on European and US Market Data. Advancing the Capital Asset Pricing Model (CAPM)

Hausarbeit (Hauptseminar) 2018 25 Seiten

VWL - Finanzwissenschaft

Zusammenfassung

The Capital Asset Pricing Model (CAPM), which is developed by Harry Markowitz, lacks on empirical validation and is not economically fully plausible. By only considering a single period within the CAPM, Merton tried to improve the model by implementing different intertemporal assumptions. This paper focuses on the analysis, if the lack of the CAPM can be improved by using the assumptions of the ICAPM and if the eight investigated models are in the sense of Merton's assumptions.

The first chapter reviews a short explanation of the classical CAPM and his critics, followed by Merton's intertemporal CAPM and his assumptions in the next chapter. Additionally, there were models developed, trying to be economically plausible by considering the ICAPM main assumptions, which are presented in the second chapter. A different way to develop an empirical better fitting CAPM is by using empirical motivated state variables. Fama & French started to take this approach by developing the three-factor-model (FF3). A lot of researchers were influenced by the FF3 and made their own version of a multifactor model by implementing variables. Even Fama & French enhanced their three-factor-model by adding further variables. In the third section there is the forecasting power of the four ICAPM models and the four empirical motivated multifactor models on the US market data and on the European market data compared. Then follows an examination if these models can be determined in the sense of the ICAPM restrictions. The last chapter concludes the results.

Details

Seiten
25
Jahr
2018
ISBN (eBook)
9783346035202
Sprache
Englisch
Katalognummer
v500704
Institution / Hochschule
Universität Duisburg-Essen – Faculty of Business and Economics
Note
1.7
Schlagworte
multifactor advancing data market european assumptions icapm model pricing asset capital intertemporal models capm

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Titel: Multifactor Models regarding Intertemporal Capital Asset Pricing Model (ICAPM) Assumptions on European and US Market Data. Advancing the Capital Asset Pricing Model (CAPM)