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CAPM-anomalies: quantitative puzzles

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  • Sabine Elmiger

    (University of Zurich)

Abstract

The stochastic discount factor is a crucial determinant of the equity premium as well as the cross-sectional distribution of stock returns. This gives rise to the idea that there is a tight link between the equity premium puzzle and cross-sectional asset pricing puzzles. This paper examines similarities between the low-beta premium, the value premium, the small-size premium and the equity premium in a special case of a static consumption-based asset pricing model with constant relative risk aversion and lognormal dividends that can be solved in closed form. The results show that cross-sectional asset pricing puzzles are quantitative puzzles just like the equity premium puzzle: The model generates a premium for stocks with a low beta, a high dividend-price ratio and a small market capitalization but the size of the premium is too small. Furthermore, the size of the premium rises together with the equity premium as the risk aversion coefficient or consumption risk is increased.

Suggested Citation

  • Sabine Elmiger, 2019. "CAPM-anomalies: quantitative puzzles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(3), pages 643-667, October.
    • Handle: RePEc:spr:joecth:v:68:y:2019:i:3:d:10.1007_s00199-018-1137-5
    DOI: 10.1007/s00199-018-1137-5
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    Cited by:

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    3. Alonso Conde, Ana B. & Rojo Suárez, Javier, 2022. "Trends in the explanatory power of factor-based asset pricing models in determining the cost of capital," Cuadernos de Gestión, Universidad del País Vasco - Instituto de Economía Aplicada a la Empresa (IEAE).

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    More about this item

    Keywords

    CAPM; CRRA; Beta premium; Value premium; Size premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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