CAPM and irrational market: Theories and empirical studies.

摘要

With a new interpretation of the Capital Asset Pricing Model (CAPM), this dissertation explains that the CAPM has an implied assumption of no mispricing. The CAPM should work if mispricing is removed from all assets in the market, leading to the Rational CAPM. The Rational CAPM measures value changes of the market, and then yields value changes of an asset/portfolio by employing value changes of the market in the model. For the Rational CAPM, this dissertation explains that risk, mispricing, irrationality and (investor) sentiment all indicate the same. Using the value changes from the Rational CAPM and historical dividend yields, this dissertation demonstrates how to measure values and bubbles in historical data, leading to the Ex-post Bubble Model (EBM). By the EBM, this dissertation reveals how irrationality forms, develops and reduces bubbles. Based on the Rational CAPM and the EBM, empirical studies are conducted into the U.S. stock market to verify the validity of these models. The results from the U.S. stock market provide the evidence that both Rational CAPM and EBM work with historical data.