X-Capm revisited: the institutional extrapolative capital asset pricing model (I-X-CAPM)

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info:eu-repo/semantics/openAccesshttp://creativecommons.org/publicdomain/zero/1.0/Date
2018Metadata
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Son-Turan, S., & Kilic, E. (September 01, 2018). X-Capm revisited: the institutional extrapolative capital asset pricing model (I-X-CAPM). Eurasian Journal of Business and Management, 6 (3), 2018, 1-9. DOI: 10.15604/ejbm.2018.06.02.001Abstract
This study constructs and tests a consumption-based asset pricing model in which some
investors form beliefs about future price changes in the stock market by extrapolating past price
changes, while other investors hold fully rational beliefs. The contribution of the present work is
the inclusion of institutional investor bias. As such it extends theory. But it also conducts
econometric tests by using daily survey data on individual and institutional investors’ sentiment
on the current economic situation and their future expectations. Empirical findings may imply
that institutions’ sentiment reverts quicker to the equilibrium price than individual sentiment, at
least with regard to their beliefs on future economic outlook. If studied further with a bigger
dataset, it may imply that institutional investors are closer to the rational-decision making
mechanism compared to individual investors. The theoretical framework rests on prospect
theory. The market studied is the US equity market, however findings and suggestions can be
applied to global markets and various financial instruments.
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Eurasian Journal of Business and ManagementVolume
6Issue
3Collections
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