A dynamic CAPM with supply effect: Theory and empirical results
Breeden [Breeden, D. T. (1979). An intertemporal asset pricing model with stochastic consumption and investment opportunities. Journal of Financial Economics 7, 265-196] and Grinols [Grinols, E. L. (1984). Production and risk leveling in the intertemporal capital asset pricing model. The Journal of Finance 39, 5, 1571-1595] and Cox et al. [Cox, J. C., Ingersoll, J. E., Jr., & Ross, S. A. (1985). An intertemporal general equilibrium model of asset prices. Econometrica 53, 363-384] have described the importance of supply side for the capital asset pricing. Black [Black, S. W. (1976). Rational response to shocks in a dynamic model of capital asset pricing. American Economic Review 66, 767-779] derives a dynamic, multiperiod CAPM, integrating endogenous demand and supply. However, Black's theoretically elegant model has never been empirically tested for its implications in dynamic asset pricing. We first theoretically extend Black's CAPM. Then we use price, dividend per share and earnings per share to test the existence of supply effect with U.S. equity data. We find the supply effect is important in U.S. domestic stock markets. This finding holds as we break the companies listed in the S&P 500 into ten portfolios by different level of payout ratio. It also holds consistently if we use individual stock data.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Amemiya, Takeshi, 1974. "A Note on a Fair and Jaffee Model," Econometrica, Econometric Society, vol. 42(4), pages 759-62, July.
- Wang, Jiang & Grossman, Sanford & Campbell, John, 1993.
"Trading Volume and Serial Correlation in Stock Returns,"
3128710, Harvard University Department of Economics.
- John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1992. "Trading Volume and Serial Correlation in Stock Returns," NBER Working Papers 4193, National Bureau of Economic Research, Inc.
- Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
- Lo, Andrew W & Wang, Jiang, 2000.
"Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory,"
Review of Financial Studies,
Society for Financial Studies, vol. 13(2), pages 257-300.
- Andrew W. Lo & Jiang W. Wang, 2000. "Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory," NBER Working Papers 7625, National Bureau of Economic Research, Inc.
- Breeden, Douglas T., 1979. "An intertemporal asset pricing model with stochastic consumption and investment opportunities," Journal of Financial Economics, Elsevier, vol. 7(3), pages 265-296, September.
- Fair, Ray C & Jaffee, Dwight M, 1972. "Methods of Estimation for Markets in Disequilibrium," Econometrica, Econometric Society, vol. 40(3), pages 497-514, May.
- John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 905-939.
- 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.
- Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
- Grinols, Earl L, 1984. " Production and Risk Leveling in the Intertemporal Capital Asset Pricing Model," Journal of Finance, American Finance Association, vol. 39(5), pages 1571-95, December.
- Black, Stanley W, 1976. "Rational Response to Shocks in a Dynamic Model of Capital Asset Pricing," American Economic Review, American Economic Association, vol. 66(5), pages 767-79, December.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-84, March.
When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:811-828. 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: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.