The Capital Asset Pricing Model Based On Capital Chain

Asset pricing is one of the key topics of modern finance. Surrounding this topic, further studies are made. Through this new problems are found and the efforts are made to solve them. All the work comprises different new domains. For example, the market micro-structure tries to open the black box of the asset price forming procedures; the behavior finance tries to make sure the influence of the irrational or part-rational behaviors of the investors in the market; the corporate governance tries to find out the relations between the corporate governance structure and the market performance of the related assets. Generally speaking, modern micro finance shows us an academic forest. But all the fields can be unified under one clew. This is the capital changing chain and its value chain. Financial market is deepened and enlarged through the promotion of financial innovations. The formations of the financial assets are changed and different formations of financial assets form a capital changing chain. The Asset pricing problem seems to be pricing one kind of asset, but it's not the fact. Every single asset is one of the nodes on capital changing chain. So the model which ignores the relationship between the nodes must produce some specific anomalies.On the changing chain, corporate asset is non-trading asset(or asset with low liquidity), but financial assets like stocks and their derivatives belong to financial asset which is a tradable asset. Contrasted to the corporate asset, the tradable capital asset and its derivative both have good liquidity and the relations between them are direct. So on this tache the no arbitrage method is applicable and the pricing models based on this principle succeed greatly. But there is a leap in liquidity from the firm asset to the capital asset for the firm asset cannot be traded freely and conveniently like the capital asset. So the non arbitrage principle can not be applied on this tache. The reason why the majority of asset pricing puzzles or anomalies exists in the capital asset pricing model lies in this. With the capital chain's continuous evolving, different fundamental-derivative relations between assets are established. From the fundamental-derivative view, stocks are derivative asset of the corporate assets. This kin relation makes stocks have some firm level characters. When the corporate assets evolve as the stocks, there is a fly in the liquidity. From the view of the capital changing chain, this is a procedure of value accruing. In fact this fly can not exist without the corporate assets. So the capital asset must take on the firm level character.This article tries to establish the capital asset pricing model based on the capital changing chain which reflect the value changing process of the assets. Essentially, the capital asset pricing model based on capital chain is modeling on the basis of dynamic process of assets'value accruing,transferring or changing. And then the equilibrium relations between the capital assets are constructed which reflect the cross sectional relations of the capital assets. In the empirical part, the data are from the New York Exchange Market and Shanghai Stock Market Exchange and Shenzhen Stock Market Exchange. The empirical results show the model do well in explaining the stock returns. The main achievements of the article including:(1)The concept of the capital changing chains is raised by analyzing the procedure of the asset formation evolving driven by the financial innovations. What is more the researches on capital asset pricing are reorganized on the basis of the capital changing chain, which include the asset pricing models and the asset pricing anomalies. This article points out the differences among three main nodes on the capital chain which are corporate assets,capital assets and the derivative assets. From two different views, the endogenous afflictions are argued between the capital chain and the asset pricing theories. One aspect is based on the nodes, the other is based on taches. On the nodes side, this article concludes three asset pricing ideologies corresponding three nodes. On the tache side, we refer that the research objective of the asset pricing is the taches among different nodes. What's more the relations between different asset are classified to three groups which are the fundamental-derivative relation,the cross sectional relation and the comprehensive relation, on basis of which the asset pricing anomalies are classified individually to different groups.(2)The price model of the capital asset is constructed trailing the path of the asset value's incrementing and transferring. And then a three–factor model is established which can be utilized by the empirical researches. Concretely, under the capital chain, we conclude the relation between the stocks and the corporate assets is a fundamental-derivative one and the research object is the capital asset under the capital chain. Firstly, the corporate value is modeled. This step is to connect the corporate asset and its fundamental asset. Secondly, the price model of the capital asset price is made which sets a bridge between the financial world and the real economy. Finally, three kinds of hetero-belief investors are introduced and then the equilibrium three-factor model is constructed which reflect the relations of different assets.(3)We compare and contrast our capital asset pricing model based on capital chain(abbreviated to CAPMBCC ) and Fama-French three-factor model. In order to have a relatively complete compare and contrast, three aspects are involved which are individual stocks returns,industrial returns and 25 Fama-French portfolios. The two- step cross sectional regression method is used when comparing and contrasting individual stock returns. CAPMBCC does better on all the three aspects which show the priorities of CAPMBCC.(4)We explain the momentum and reverse effects by CAPMBCC. Three steps are involved, which are empirical studies on the existence of momentum and reverse effects,explaining the momentum portfolios by CAPMBCC and explaining the momentum portfolios by decomposed returns. The empirical results show Chinese stock market and American stock market both have short term momentum effect and long term reverse effect. In explaining return time series of the momentum portfolios, the CAPMBCC has the edge on Fama-French three-factor model.(5)We reconstruct the CAPMCC under the general equilibrium frame. The purpose is to integrate the general equilibrium method and the capital chain. The advantage of the general equilibrium method is obvious. This makes the CAPMCC can be easily expanded such as adding the difference preference assumption of the investors. The key innovations of this dissertation are as follow:(1) Raise of the concept of the capital changing chain. And systematically to reorganize the modern asset pricing theories on the basis of the capital changing chain and to reclassify the anomalies.The financial assets form pieces of asset changing chains driven by the financial innovations. Accompanying with there procedures, the assets'values are transferred,changed and incremented, which can be called the asset value chain. The asset chain and its value chain comprise the objects of modern finance. Especially, we raise the concept of the taches of different kinds of assets. What is more, the taches can be divided into two parts. One is fundamental-derivative relation, the other is cross sectional relation. On this base, we point out the asset pricing models are exactly studying the taches. And the anomalies are divided into three parts according to where the anomaly is produce. So the asset pricing theories are unified in one frame. (2) Construction of the Capital Asset Pricing Model Based on the Capital Chain. This model can not only reflect the value transforming process along the capital chain, but also reflect different stocks'cross sectional relations. This unifies the vertical relation which is the fundamental-derivative relation and the horizontal relation which is the cross sectional relation. The model can clearly reflect three levels of information which are the corporate management level,the earning capacity level and the market liquidity level. This realizes the unification of the corporate information and the market information. We also make the compare and contract between our model and Fama-French three factor model in three aspects which are individual stock returns,industrial returns and the 25 BM-SIZE portfolios. The empirical results show that our model have edge on Fama-French three factor model.(3) Explanation of momentum and reverse effect under the capital changing chain Through CAPMBCC we explain the winner-loser portfolios in NYSE and Chinese stock market. Our model can explain the momentum portfolios better than Fama-French three-factor model. We also analyze the momentum and reverse return to make sure the resources of the returns through return analyzing. This result show the returns mainly come from the fundamental return not from the market liquidity.(4) Unifying the capital changing chain's idea and the general equilibrium method and reconstructing the CAPMBCC using the general equilibrium method.General equilibrium has great vitas in modern asset pricing fields. Especially, stochastic discount method can conveniently study the influence of different preference assumption. Under the capital chain, we use the SDF method to reconstruct the CAPMBCC. This work make the CAPMBCC updatable which makes further studies possible.