Investigating the Capital Asset Pricing Model with Intangible Capital: Dynamic Stochastic General Equilibrium Model

Document Type : Research Paper

Authors

1 Department of economics, Faculty of economics and management, Shiraz branch, Islamic Azad University, Shiraz, Iran

2 Department of Economic, Faculty of Economic and Management, Shiraz Branch, Islamic Azad University

Abstract

Modeling and evaluation of capital asset pricing is one of the most important branches in financial economics and economic growth. Consequently, development of countries’ stock market can play a significant role in optimal allocation of financial resources. The main purpose of this study was to modeling capital asset pricing in a quantitative general equilibrium model with growth options for intangible capital. This article was thus modeled based on the component of long run risk, intangible capital and with recursive preferences due to the failure in predicting conditional capital asset pricing models(C-CAPM). The framework thus explains the observed difference between the book-to-market ratios by intangible capital. In this model, growth stocks are of lower exposure to aggregate productivity risk than value stocks. This article also explains the dynamics of consumption and investment within the framework of the general equilibrium for Iran's economy. The findings show that young firms have idiosyncratic volatility more than older firms and the relationship between book-to-market ratio and aggregate productivity growth is negative. In other words, aggregate productivity growth has a different effect on firm heterogeneity at the firm age and capital age.

Keywords

References

 
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History

  • Receive Date: 12 March 2019
  • Revise Date: 04 October 2019
  • Accept Date: 09 October 2019

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