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Title: Information and capital asset pricing
Authors: Li, Baibing
Yin, Xiangkang
Keywords: Asset pricing
Asymmetric information
CAPM anomaly
Rational expectations equilibrium
Issue Date: 2011
Publisher: © Taylor and Francis
Citation: LI, Y. and YIN, X., 2011. Information and capital asset pricing. The European Journal of Finance, 17 (7), pp. 505-523.
Abstract: Investors in a market frequently update their diverse perceptions of the values of risky assets, thus invalidating the classic capital asset pricing model's (CAPM) assumption of complete agreement among investors. To accommodate information asymmetry and belief updating, we have developed an empirically testable information-adjusted CAPM, which states that the expected excess return of a risky asset/portfolio is solely determined by the information-adjusted beta rather than the market beta. The model is then used to analyze empirical anomalies of the classic CAPM, including a flatter relation between average return and the market beta than the CAPM predicts, a non-zero Jensen's alpha, insignificant explanatory power of the market beta, and size effect.
Description: This article was published in the European Journal of Finance [© Taylor and Francis]. The definitive version is available at: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495476
Version: Accepted for publication
DOI: 10.1080/1351847X.2010.495476
URI: https://dspace.lboro.ac.uk/2134/9160
Publisher Link: http://dx.doi.org/10.1080/1351847X.2010.495476
ISSN: 1351-847X
Appears in Collections:Published Articles (Business School)

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