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

  • Maria PASCU-NEDELCU

    ()

    (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.

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File URL: http://www.jdre.ase.ro/RePEc/aes/jdreco/20111005.pdf
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Article provided by The Bucharest University of Economic Studies in its journal Journal of Doctoral Research in Economics.

Volume (Year): 3 (2011)
Issue (Month): 1 (March)
Pages: 47-61

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Handle: RePEc:aes:jdreco:v:3:y:2011:i:1:p:47-61
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  1. 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, 09.
  2. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  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.
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