The Analyses of Risk Premium and the Model Revisions About Capital Asset Pricing Models

The pricing theories of capital assets are the principal part in the modern financial theories. Presently, the capital asset pricing model and the arbitrage pricing theory, including their evolutional forms, all don＇t embody the premium of non-system risks and non-factor risks. This paper analyses the risk reward of traditional capital assets pricing models, revises the traditional capital assets pricing models, and advances the revised models of capital assets pricing theories basing on full-risk reward.

A new test on the conditional capital asset pricing model

Testing the validity of the conditional capital asset pricing model （CAPM） is a puzzle in the finance literature. Lewellen and Nagel[14] find that the variation in betas and in the equity premium would have to be implausibly large to explain important asset-pricing anomalies. Unfortunately, they do not provide a rigorous test statistic. Based on a simulation study, the method proposed in Lewellen and Nagel[14] tends to reject the null too frequently. We develop a new test procedure and derive its limiting distribution under the null hypothesis. Also, we provide a Bootstrap approach to the testing procedure to gain a good finite sample performance. Both simulations and empirical studies show that our test is necessary for making correct inferences with the conditional CAPM.

International Financial Market＇s Integration and Modelling Returns of Risky Assets

The aim of this paper is to test the ability of conditional and unconditional capital asset pricing models （CAPMs） and to explain emerging markets returns in terms of their integration into the international market. The authors use data on five developed countries and five emerging countries as well as data on the Tunis Stock Exchange （TSE） after the reforms. The results show that the correlations between emerging markets returns and developed markets returns are very low and sometimes negative. Conditional arbitrage pricing theory （APT） as well as conditional CAPM has low predictive power for emerging markets than that for developed markets. Finally, following the financial reforms, Tunisian financial markets have became more and more integrated into the international market （excess returns and unconditional beta consistent with predictions）. However, conditional APT does not accurately explain Tunisian market returns. This study confirms the unavailability of an accurate modelling technique of the TSE structure.

Does the EVA valuation model explain the market value of equity better under changing required return than constant required return?

Through the Economic-Value-Added(EVA)valuation model,the expected market value of equity can be determined by adding the book value of equity with the present value of expected EVAs under the assumption of constant required return and constant return on equity.The equation of EVA valuation model has taken its shape under the assumption of constant required return and constant return on equity.However,a large body of empirical evidence indicates that required rate of return never remain constant.The EVA-valuation model formulated under constant required return cannot be implemented under the scenario of changing required return.In this study,we explored whether the EVA valuation model could be implemented under changing required return by making any changes in the model and found that it could be implemented under the scenario of changing required return by replacing the book value of the equity of the existing model with the present value of required earnings or normal market earnings.We further examined whether the explanatory ability of the EVA valuation model under the assumption of changing required return is better than that of the valuation model under the assumption of constant required return.Relative information content analyses were conducted by considering sample of the intrinsic value of equities determined by valuation models and the market value of equities of 69 large-cap,88 mid-cap,and 79 small-cap companies.The results showed that the EVA-based valuation model with changing normal market return outperformed the EVA-based valuation model with constant required return.

Empirical analysis on risk of security investment

The paper analyzes the theory and application of Markowitz Mean-Variance Model and CAPM model. Firstly, it explains the development process and standpoints of two models and deduces the whole process in detail. Then 30 stocks are choosen from Shangzheng 50 stocks and are testified whether the prices of Shanghai stocks conform to the two models. With the technique of time series and panel data analysis, the research on the stock risk and effective portfolio by ORIGIN and MATLAB software is conducted. The result shows that Shanghai stock market conforms to Markowitz Mean-Variance Model to a certain extent and can give investors reliable suggestion to gain higher return, but there is no positive relation between system risk and profit ratio and CAPM doesn＇t function well in China＇s security market.

A Research of China Stock Market by Capital-Asset Pricing Model

Capital Asset Pricing Model (CAPM) is an important investment portfolio model,which is developmented from Markowitz’s investment portfolio theory. This paper initially verifies CAPM by means of the statistical regression analysis on the data in Shanghai stock exchange, including 164 kinds of going public stocks, from September 1992 to October 1994. The paper analyzes the current situation of China stock exchange and suggests how to develop its trade.

Discount Rate of China’s New Energy Power Industry

Under the dual pressures of energy crisis and environmental pollution,China’s new energy power industry has become a focal point for environmental management and requires greater investment.In this context,as a significant input of investment projects,discount rate requires a well-calibrated evaluation because new energy power investment projects are highly capital intensive.The main objective of this paper is to evaluate the discount rate of China’s new energy power industry.First,we use Moving Average to correct the parameters of capital asset pricing model(CAPM)and weighted average cost of capital,which extends the literature on the avoidance of CAPM noise information problem.Second,we study the industry-level annual discount rates of mainly China’s new energy power industries,including hydropower,nuclear power,wind power,and photovoltaic power industries for the period of 2014-2019.The results show that discount rates in China’s new energy power industries evolved differently between the years of 2014-2019 with average annual discount rates being 7.56%,5.83%,5.60%,and 8.64%,for the hydropower,nuclear power,wind power,and photovoltaic power industries,respectively.In 2019,the four annual discount rates were highest for the photovoltaic power industry(8.66%),followed by hydropower(7.17%),wind power(5.72%),and nuclear power industry(5.26%).Forecasting to 2020 from the 2019 evaluation base period,the discount rates are 6.37%,5.00%,6.57%,and 9.05%for the photovoltaic power,hydropower,wind power,and nuclear power industries,respectively.Under the different capital structures,their forecasts for the photovoltaic power,hydropower,wind power,and nuclear power industries in 2020 are,respectively,within[4.35%,9.24%],[3.92%,7.10%],[4.58%,10.40%],[5.46%,14.81%].We also discussed more details on capital structure and forecast period of discount rates for China’s new energy power industries.Our analysis shows that it is necessary to establish a new energy power industry database and steadily promote the implementation of policies.

A Theoretical Examination of Untaxed Entities and Taxed Entities in the Market for Commercial Real Estate

This paper is a theoretical examination of untaxed and taxed entities that invest in real estate. The standard advice to real estate investors is to avoid using entities that are subject to taxation （such as C corporations） and employ entities that are not subject to taxation （such as limited liability companies, S corporations, and real estate investment trusts） in order to avoid double taxation of income. This paper shows that, in most situations, untaxed entities place a greater value on a given real estate property than a taxed entity does, which implies that taxed entities are at a distinct disadvantage at competing in the market for property. However, this conclusion is reversed if untaxed entities use a large amount of financial leverage compared to taxed entities and the borrowing rate for both is greater than the risk-free rate.

A risky asset model based on Lvy processes and asymptotically self-similar activity time processes with long-range dependence

In the paper, using Levy processes subordinated by ＇asymptotically self-similar activity time＇ pro- cesses with long-range dependence, we set up new asset pricing models. Using the different construction for gamma （F） based ＇asymptotically self-similar activity time＇ processes with long-range dependence from Fin- lay and Seneta （2006） we extend the constructions for inverse-gamma and gamma based ＇asymptotically self- similar activity time＇ processes with integer-vMued parameters and long-range dependence in Heyde and Leo- nenko （2005） and Finlay and Seneta （2006） to noninteger-valued parameters.

Currency Exposure in China under the New Exchange Rate Regime： National Level Evidence

The present paper studies China＇s national level currency exposure since 2005 when the country adopted a new exchange rate regime allowing the renminbi （RMB） to move towards greater flexibility. Using generalized autoregressive conditional heteroskedastic and constant conditional correlation-generalized autoregressive conditional heteroskedastic methods to estimate the augmented capital asset pricing models with orthogonalized stock returns, we find that China equity indexes are significantly exposed to exchange rate movements. In a static setting, there is strong sensitivity of stock returns to movements of China＇s trade- weighted exchange rate, and to the bilateral exchange rates except the RMB/dollar rate. However, in a dynamic framework, exposure to all the bilateral currency pairs under examination is significant. The results indicate that under the new exchange rate regime, China＇s gradualist approach to moving towards greater exchange rate flexibility has managed to keep exposure to a moderate level. However, we find evidence that in a dynamic setting, the exposure of the RMB to the dollar and other major currencies is significant. For China, the challenge of managing currency risk exposure is looming greater.

The influence of Disposition Effect on Stock Return in China

This paper introduces the disposition effect into asset pricing process, and sets dynamic equilibrium model on which we can discuss the pattern of risk assets＇ returns. On base of theory results, we use data of China stock market to analyze the influence of disposition effect on stock return. The empirical study result confirms the disposition effect＇s existence in China stock market and it does affect the stock return.

A CCAPM with Time-varying Betas and Its Applications in Chinese Stock Market

Investors usually require premiums to compensate those components of risk that cannot be diversified away. Investors＇ risk premiums is changing with the business cycles. In this paper we study the CCAPM allowing for the time-varying beta. The timevarying betas are estimated from GARCH model. From the estimation results, we can see that the systematic risk coefficient betas of certain industry change when the volatility changes.