Diacogiannis, George and Ioannidis, Christos (2019). Linear beta pricing with inefficient benchmarks in a given factor structure. European Journal of Finance, 25 (16), pp. 1551-1571.
Abstract
We show the equivalence between the zero-beta version of a multi-factor arbitrage pricing model and a linear pricing model utilizing undiversified inefficient benchmarks in a given factor structure. The resulting linear model is a two-beta model, with one beta related to the inefficient benchmark and another adjusting for its inefficiency. This linear model shows that there are only two distinctive and computable sources of risk, affecting security expected returns, despite the existence of several risk factors. In a short empirical example we demonstrate that the model can be employed to provide guidance and allow researchers to test for the validity of their selection of the underlying risk factors driving variations in security returns.
Publication DOI: | https://doi.org/10.1080/1351847X.2019.1639207 |
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Divisions: | College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship College of Business and Social Sciences > Aston Business School > Centre for Personal Financial Wellbeing College of Business and Social Sciences > Aston Business School |
Additional Information: | This is an Accepted Manuscript of an article published by Taylor & Francis Group in European Journal of Finance on 16 July 2019, available online at: http://www.tandfonline.com/10.1080/1351847X.2019.1639207 |
Uncontrolled Keywords: | asset pricing,bond interest rates,General portfolio choice,investment decisions,trading volume,Economics, Econometrics and Finance (miscellaneous) |
Publication ISSN: | 1466-4364 |
Last Modified: | 06 Aug 2024 08:36 |
Date Deposited: | 17 Sep 2019 09:19 |
Full Text Link: |
https://papers. ... ract_id=3397020 |
Related URLs: |
http://www.scop ... tnerID=8YFLogxK
(Scopus URL) https://www.tan ... 7X.2019.1639207 (Publisher URL) |
PURE Output Type: | Article |
Published Date: | 2019-07-16 |
Accepted Date: | 2019-04-09 |
Authors: |
Diacogiannis, George
Ioannidis, Christos |