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Asset Pricing when Market Sentiments Regulate Asset-Returns: Evidences from Emerging Markets

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  • Debasish Majumder

Abstract

After 2003, the growth of equity prices in emerging markets in Asia, Latin America and Europe has been considerably higher in comparison with developed markets and, therefore, these markets have become the focus of attention of investors, the financial press, and researchers. These markets are needed to be studied separately because features of these markets are different from a developed market: on the one hand, they are hypersensitive to investors' sentiments and, on the other, equity returns are predictable by past observations. Unfortunately, common asset pricing models cannot explain such predictability in stock returns. The factor which is responsible for such predictability and hence the nonrandom behavior of the stock return can be accounted for in an asset pricing model. Based on this observation, the present paper proposes a generalization of the conventional asset pricing model. However, the framework would be applicable to all types of markets ranging from strictly efficient to inefficient.

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  • Debasish Majumder, 2011. "Asset Pricing when Market Sentiments Regulate Asset-Returns: Evidences from Emerging Markets," Journal of Quantitative Economics, The Indian Econometric Society, vol. 9(1), pages 89-117.
    • Handle: RePEc:jqe:jqenew:v:9:y:2011:i:1:p:89-117
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    Cited by:

    1. Majumder, Debasish, 2012. "When the market becomes inefficient: Comparing BRIC markets with markets in the USA," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 84-92.
    2. Majumder, Debasish, 2014. "Asset pricing for inefficient markets: Evidence from China and India," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(2), pages 282-291.

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