The Asset Pricing System

ABSTRACT

Mainstream asset pricing models are all inappropriate when they consistently insist on applying one single model to deal with a reality filled with different aspects of asset pricing. In addition, those models also treat the right environ-ment variable too lightly hence can not rightly do the job of asset pricing. In this study, based on the portfolio theory and the principle of supply and demand, a more reasonable asset pricing system including five different models will be suggested to provide a necessary function of automatic price stabilization and to better serve our financial market.

Mainstream asset pricing models are all inappropriate when they consistently insist on applying one single model to deal with a reality filled with different aspects of asset pricing. In addition, those models also treat the right environ-ment variable too lightly hence can not rightly do the job of asset pricing. In this study, based on the portfolio theory and the principle of supply and demand, a more reasonable asset pricing system including five different models will be suggested to provide a necessary function of automatic price stabilization and to better serve our financial market.

KEYWORDS

Asset Pricing System; Environment Variable; Portfolio Theory; Automatic Price Stabilization

Asset Pricing System; Environment Variable; Portfolio Theory; Automatic Price Stabilization

Cite this paper

Y. Yu, "The Asset Pricing System,"*Modern Economy*, Vol. 3 No. 5, 2012, pp. 473-480. doi: 10.4236/me.2012.35062.

Y. Yu, "The Asset Pricing System,"

References

[1] L. H. Summers, “On Economics and Finance,” Journal of Finance, Vol. 40, No. 3, 1985, pp. 633-635. doi:10.1111/j.1540-6261.1985.tb04985.x

[2] P. Krugman, “How Did Economists Get It So Wrong?” 2009. http://www.globalresearch.ca/index.php

[3] D. Colander, “The Economics Profession, the Financial Crisis, and Method,” Journal of Economic Methodology, Vol. 17, No. 4, 2010, pp. 419-428. doi:10.1080/1350178X.2010.525039

[4] C. Kindleberger, “Manias, Panics, and Crashes: A History of Financial Crises,” 5th Edition, Hoboken, 2005. doi:10.1057/9780230628045

[5] H. Askari, Z. Iqbal, N. Kri-cheme and A. Mirakhor, “The Stability of Islamic Finance,” John Wiley & Sons (Asia), Singapore City, 2010.

[6] L. C. Bresser-Pereira, “The Global Financial Crisis and a New Capi-talism?” Journal of Post Keynesian Economics, Vol. 32, No. 4, 2010, pp. 499-534. doi:10.2753/PKE0160-3477320401

[7] P. Chen and G. Zhang, “How Do Accounting Variables Explain Stock Price Movements? Theory and Evidence,” Journal of Accounting and Economics, Vol. 43, No. 2-3, 2007, pp. 219-244. doi:10.1016/j.jacceco.2007.01.001

[8] E. F. Fama, “Stock Returns, Real Activity, Inflation, and Money,” American Eco-nomic Review, Vol. 71, No. 4, 1981, pp. 545-565.

[9] B. Lev and R. Thiagarajan, “Fundamental Information Analysis,” Journal of Accounting Research, Vol. 31, No. 2, 1993, pp. 190-215. doi:10.2307/2491270

[10] E. P. Swanson, L. Rees and L. F. Juarez-Valdes, “The Contribution of Fundamental Analysis after a Currency Devaluation,” The Accounting Review, Vol. 78, No. 3, 2003, pp. 875-903. doi:10.2308/accr.2003.78.3.875

[11] J. L. Bettman, S. J. Sault and E. L. Schultz, “Fundamental and Technical Analysis: Subs-titutes or Complements?” Accounting and Finance, Vol. 49, No. 1, 2009, pp. 21-36. doi:10.1111/j.1467-629X.2008.00277.x

[12] S. P. Kothari, “Capital Markets Research in Accounting,” Journal of Ac-counting and Economics, Vol. 31, No. 1-3, 2001, pp. 105-231. doi:10.1016/S0165-4101(01)00030-1

[13] D. Collins and S. Kothari, “An Analysis of Inter-temporal and Cross-sectional Determinants of Earnings Response Coefficients,” Journal of Accounting and Economics, Vol. 11, No. 2/3, 1989, pp. 143-181. doi:10.1016/0165-4101(89)90004-9

[14] P. Dechow, A. Hut-ton and R. Sloan, “An Empirical Assessment of the Residual Income Valuation Model,” Journal of Accounting and Eco-nomics, Vol. 26, No. 1-3, 1999, pp. 1-34. doi:10.1016/S0165-4101(98)00049-4

[15] E. F. Fama and K. R. French, “The CAPM is Wanted, Dead or Alive,” Journal of Finance, Vol. 51, No. 5, 1996, pp. 1947-1957. doi:10.1111/j.1540-6261.1996.tb05233.x

[16] E. F. Fama and K. R. French, “The Capital Asset Pricing Model: Theory and Evidence,” Journal of Economic Perspective, Vol. 18, No. 3, 2004, pp. 25-46. doi:10.1257/0895330042162430

[17] H. Levy, “The CAPM Is Alive and Well: A Review and Synthesis,” European Financial Management, Vol. 16, No. 1, 2010, pp. 43-71. doi:10.1111/j.1468-036X.2009.00530.x

[18] R. D. Arnott, J. Hsu and P. Moore, “Fundamental Indexation,” Financial Ana-lysts Journal, vol. 61, No. 2, 2005, pp. 83-99. doi:10.2469/faj.v61.n2.2718

[19] J. Mar, R. Bird, L. Casavec-chia and D. Yeung, “Fundamental Indexation: An Australian Investigation,” Australian Journal of Management, Vol. 34, No. 1, 2009, pp. 1-20. doi:10.1177/031289620903400102

[20] P. D. Kaplan, “Why Fundamental Indexation Might—Or Might Not—WORK,” Financial Analysts Journal, Vol. 64, No. 1, 2008, pp. 32-39. doi:10.2469/faj.v64.n1.5

[21] F. J. Fabozzi, F. Gupta and H. M. Markowitz, “The Legacy of Modern Portfolio Theory,” Journal of Investing, Vol. 11, No. 3, 2002, pp. 7-22. doi:10.3905/joi.2002.319510

[22] G. N. Mandelker and S. G. Rhee, “The Impact of the Degree of Operating and Financial Leverage on Systematic Risk of Common Stock,” Journal of Financial and Quantitative Analysis, Vol. 19, No. 1, 1984, pp. 45-57. doi:10.2307/2331000

[23] R. Jarrow and S. Turnbull, “Deriva-tive Securities,” Chapter 4, South-Western, Cincinnati, 1996.

[24] E. Limpert, W. A. Stahel and M. Abbt, “Log-normal Distribution across the Sciences: Keys and Clues,” Bioscience, Vol. 51, No. 5, 2001, pp. 341-352. doi:10.1641/0006-3568(2001)051[0341:LNDATS]2.0.CO;2

[25] Y. Yu, “Stock Analysis and Investment,” 2nd Edition, (in Chinese), Yeh-Yeh, Taipei, 2007.

[26] F. Modigliani and L. Modigliani, “Risk-Adjusted Performance,” Journal of Portfolio Management, Vol. 23, No. 2, 1997, pp. 45-54. doi:10.3905/jpm.23.2.45

[27] M. Blume and I. Friend, “A New Look at the Capital Asset Pricing Model,” Journal of Finance, Vol. 28, No. 1, 1973, pp. 19-34. doi:10.1111/j.1540-6261.1973.tb01342.x

[28] E. F. Fama and K. R. French, “The Capital Asset Pricing Model: Theory and Evidence,” Journal of Economic Perspective, Vol. 18, No. 3, 2004, pp. 25-46. doi:10.1257/0895330042162430

[1] L. H. Summers, “On Economics and Finance,” Journal of Finance, Vol. 40, No. 3, 1985, pp. 633-635. doi:10.1111/j.1540-6261.1985.tb04985.x

[2] P. Krugman, “How Did Economists Get It So Wrong?” 2009. http://www.globalresearch.ca/index.php

[3] D. Colander, “The Economics Profession, the Financial Crisis, and Method,” Journal of Economic Methodology, Vol. 17, No. 4, 2010, pp. 419-428. doi:10.1080/1350178X.2010.525039

[4] C. Kindleberger, “Manias, Panics, and Crashes: A History of Financial Crises,” 5th Edition, Hoboken, 2005. doi:10.1057/9780230628045

[5] H. Askari, Z. Iqbal, N. Kri-cheme and A. Mirakhor, “The Stability of Islamic Finance,” John Wiley & Sons (Asia), Singapore City, 2010.

[6] L. C. Bresser-Pereira, “The Global Financial Crisis and a New Capi-talism?” Journal of Post Keynesian Economics, Vol. 32, No. 4, 2010, pp. 499-534. doi:10.2753/PKE0160-3477320401

[7] P. Chen and G. Zhang, “How Do Accounting Variables Explain Stock Price Movements? Theory and Evidence,” Journal of Accounting and Economics, Vol. 43, No. 2-3, 2007, pp. 219-244. doi:10.1016/j.jacceco.2007.01.001

[8] E. F. Fama, “Stock Returns, Real Activity, Inflation, and Money,” American Eco-nomic Review, Vol. 71, No. 4, 1981, pp. 545-565.

[9] B. Lev and R. Thiagarajan, “Fundamental Information Analysis,” Journal of Accounting Research, Vol. 31, No. 2, 1993, pp. 190-215. doi:10.2307/2491270

[10] E. P. Swanson, L. Rees and L. F. Juarez-Valdes, “The Contribution of Fundamental Analysis after a Currency Devaluation,” The Accounting Review, Vol. 78, No. 3, 2003, pp. 875-903. doi:10.2308/accr.2003.78.3.875

[11] J. L. Bettman, S. J. Sault and E. L. Schultz, “Fundamental and Technical Analysis: Subs-titutes or Complements?” Accounting and Finance, Vol. 49, No. 1, 2009, pp. 21-36. doi:10.1111/j.1467-629X.2008.00277.x

[12] S. P. Kothari, “Capital Markets Research in Accounting,” Journal of Ac-counting and Economics, Vol. 31, No. 1-3, 2001, pp. 105-231. doi:10.1016/S0165-4101(01)00030-1

[13] D. Collins and S. Kothari, “An Analysis of Inter-temporal and Cross-sectional Determinants of Earnings Response Coefficients,” Journal of Accounting and Economics, Vol. 11, No. 2/3, 1989, pp. 143-181. doi:10.1016/0165-4101(89)90004-9

[14] P. Dechow, A. Hut-ton and R. Sloan, “An Empirical Assessment of the Residual Income Valuation Model,” Journal of Accounting and Eco-nomics, Vol. 26, No. 1-3, 1999, pp. 1-34. doi:10.1016/S0165-4101(98)00049-4

[15] E. F. Fama and K. R. French, “The CAPM is Wanted, Dead or Alive,” Journal of Finance, Vol. 51, No. 5, 1996, pp. 1947-1957. doi:10.1111/j.1540-6261.1996.tb05233.x

[16] E. F. Fama and K. R. French, “The Capital Asset Pricing Model: Theory and Evidence,” Journal of Economic Perspective, Vol. 18, No. 3, 2004, pp. 25-46. doi:10.1257/0895330042162430

[17] H. Levy, “The CAPM Is Alive and Well: A Review and Synthesis,” European Financial Management, Vol. 16, No. 1, 2010, pp. 43-71. doi:10.1111/j.1468-036X.2009.00530.x

[18] R. D. Arnott, J. Hsu and P. Moore, “Fundamental Indexation,” Financial Ana-lysts Journal, vol. 61, No. 2, 2005, pp. 83-99. doi:10.2469/faj.v61.n2.2718

[19] J. Mar, R. Bird, L. Casavec-chia and D. Yeung, “Fundamental Indexation: An Australian Investigation,” Australian Journal of Management, Vol. 34, No. 1, 2009, pp. 1-20. doi:10.1177/031289620903400102

[20] P. D. Kaplan, “Why Fundamental Indexation Might—Or Might Not—WORK,” Financial Analysts Journal, Vol. 64, No. 1, 2008, pp. 32-39. doi:10.2469/faj.v64.n1.5

[21] F. J. Fabozzi, F. Gupta and H. M. Markowitz, “The Legacy of Modern Portfolio Theory,” Journal of Investing, Vol. 11, No. 3, 2002, pp. 7-22. doi:10.3905/joi.2002.319510

[22] G. N. Mandelker and S. G. Rhee, “The Impact of the Degree of Operating and Financial Leverage on Systematic Risk of Common Stock,” Journal of Financial and Quantitative Analysis, Vol. 19, No. 1, 1984, pp. 45-57. doi:10.2307/2331000

[23] R. Jarrow and S. Turnbull, “Deriva-tive Securities,” Chapter 4, South-Western, Cincinnati, 1996.

[24] E. Limpert, W. A. Stahel and M. Abbt, “Log-normal Distribution across the Sciences: Keys and Clues,” Bioscience, Vol. 51, No. 5, 2001, pp. 341-352. doi:10.1641/0006-3568(2001)051[0341:LNDATS]2.0.CO;2

[25] Y. Yu, “Stock Analysis and Investment,” 2nd Edition, (in Chinese), Yeh-Yeh, Taipei, 2007.

[26] F. Modigliani and L. Modigliani, “Risk-Adjusted Performance,” Journal of Portfolio Management, Vol. 23, No. 2, 1997, pp. 45-54. doi:10.3905/jpm.23.2.45

[27] M. Blume and I. Friend, “A New Look at the Capital Asset Pricing Model,” Journal of Finance, Vol. 28, No. 1, 1973, pp. 19-34. doi:10.1111/j.1540-6261.1973.tb01342.x

[28] E. F. Fama and K. R. French, “The Capital Asset Pricing Model: Theory and Evidence,” Journal of Economic Perspective, Vol. 18, No. 3, 2004, pp. 25-46. doi:10.1257/0895330042162430