Testing the Consumption-Capm in Developing Equity Markets
Abstractsta The Consumption Capital Asset Pricing Model (C-CAPM) is tested using data on equity prices in Jordan, Turkey, and Pakistan over the period 1986-93. The analysis is carried out in two steps. The parameters of agents' dynamic consumption and investment decisions are first estimated, and then the implied equity market price (based on the model) is compared with the actual evolution of equity prices. The empirical results support the proposistion that equity price movements in Jordan, Turkey, and Pakistan are not consistent with the C-CAPM. In each of these developing equity markets, the variability of equity price indices could not be accounted for by information regarding future dividends alone, and the failure to reject the null hypothesis of no cointegration of the implied and actual equity price series is due to parameter instability.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 593.
Length: 30 pages
Date of creation: 1997
Date of revision:
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Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
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ECONOMETRICS ; CONSUMPTION ; FINANCIAL MARKET;
Other versions of this item:
- Cashin, Paul & McDermott, C John, 1998. "Testing the Consumption-CAPM in Developing Equity Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(2), pages 127-41, April.
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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- Christopher J. Green & Victor Murinde, 2003. "Flow of funds: implications for research on financial sector development and the real economy," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 1015-1036.
- Tam, Henry & Lai, Liona, 2009. "Explaining the equity premium in Hong Kong with C-CAPM: The use of emigration growth as an instrument," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 520-533, July.
- Magda Kandil & Ida Mirzaie, 2006. "Consumption and macroeconomic policies: Theory and evidence from developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(4), pages 469-491.
- Cashin, Paul & McDermott, C John, 2002. "Intertemporal Consumption Smoothing and Capital Mobility: Evidence from Australia," Australian Economic Papers, Wiley Blackwell, vol. 41(1), pages 82-98, March.
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