IDEAS home Printed from
   My bibliography  Save this article

Merton Model For Assessing The Cost Of Capital, Mathematical Amount But Not Also Economic Amount Of Capm And Apt Models



    () (Bucharest Academy of Economic Studies, Romania)


Models for assessing the cost of capital play a central role in substantiating investments decision. These models are often used to evaluate investments in trading securities on the stock market. This paper aims to highlight how a classic model of evaluation, inter-temporal CAPM model, in other words Merton model, can be written mathematically as the sum of two other classic models, CAPM and APT, but the results provided by it does not account for the positive results of the two components models. It is shown in this research that econometric tests of the model, on empirical data, it does not return more accurate results and more rigorous than either of the models used as components. The result of this research is to reveal the error in which the researchers fall when starting to build new econometric models for evaluation combining equations of existing models.

Suggested Citation

  • Maria PASCU-NEDELCU, 2011. "Merton Model For Assessing The Cost Of Capital, Mathematical Amount But Not Also Economic Amount Of Capm And Apt Models," Journal of Doctoral Research in Economics, The Bucharest University of Economic Studies, vol. 3(1), pages 47-61, March.
  • Handle: RePEc:aes:jdreco:v:3:y:2011:i:1:p:47-61

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    3. Fama, Eugene F., 1998. "Determining the Number of Priced State Variables in the ICAPM," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(02), pages 217-231, June.
    Full references (including those not matched with items on IDEAS)

    More about this item


    regression equations; exogenous variables; endogenous variables; heteroskedasticity; probability of occurrence for the null value; error probability;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aes:jdreco:v:3:y:2011:i:1:p:47-61. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lucian Onisor). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.