Asset pricing with disequilibrium price adjustment: theory and empirical evidence
Breeden [<italic>J. Financial Econ.</italic>, 1979, <bold>7</bold>, 265--196], Grinols [<italic>J. Finance</italic>, 1984, <bold>39</bold>(5), 1571--1595] and Cox <italic>et al</italic>. [<italic>Econometrica</italic>, 1985, <bold>53</bold>, 363--384] describe the importance of including the supply side in capital asset pricing. Black [<italic>Am. Econ. Rev</italic>., 1976, <bold>66</bold>, 767--779] derives a dynamic, multi-period CAPM, integrating endogenous demand and supply. Based upon the papers of Black and Lee <italic>et al</italic>. [<italic>Q. Rev. Econ. Finance</italic>, 2009, <bold>49</bold>, 811--828], we first derive a simultaneous equation asset pricing model. Then we test the simultaneous equation asset pricing model in terms of the disequilibrium models developed by Fair and Jaffee [<italic>Econometrica</italic>, 1972, <bold>40</bold>, 497--514], Amemiya [<italic>Econometrica</italic>, 1974, <bold>42</bold>, 759--762], Quandt [<italic>The Econometrics of Disequilibrium</italic>, 1988], and others. We also discuss two methods of estimating an asset pricing model with a disequilibrium price adjustment effect. Finally, using price per share, dividend per share, and shares outstanding, we empirically test the existence of a price disequilibrium adjustment process with international index data and U.S. equity data. We find that a disequilibrium price adjustment process does, in fact, exist in our empirical data. Our results support the finding of Lo and Wang [<italic>Rev. Financial Stud</italic>., 2000, <bold>13</bold>, 257--300] that trading volume is an important factor in capital asset pricing.
Year of publication: |
2013
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Authors: | Lee, Cheng-Few ; Tsai, Chiung-Min ; Lee, Alice C. |
Published in: |
Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 13.2013, 2, p. 227-239
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Publisher: |
Taylor & Francis Journals |
Saved in:
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