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Corrigendum to "The systematic risk estimation models: A different perspective" [Volume 6, Issue 2 (February 2020) e03371].

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An augmented capital asset pricing model using new macroeconomic determinants.

Chinh Duc Pham1, Le Tan Phuoc2

  • 1University of Economics and Law, VNU-HCM, Viet Nam.

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|October 26, 2020
PubMed
Summary

A new macroeconomic asset pricing model (MAPM) outperforms the traditional capital asset pricing model (CAPM) in predicting U.S. stock returns. The MAPM incorporates macroeconomic factors, offering superior forecasting and explanatory power for investors.

Keywords:
Asset pricingCorporate financeEconometricsExchange rateFinancial economicsGovernment long-term bond rateInterest rateMacroeconomicsMoneyPricing

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Area of Science:

  • Finance
  • Economics
  • Quantitative Finance

Background:

  • Traditional asset pricing models like the Capital Asset Pricing Model (CAPM) have limitations in explaining stock returns.
  • Macroeconomic factors are increasingly recognized as significant drivers of financial markets.
  • Existing models may not fully capture the complex interplay between macroeconomic variables and stock performance.

Purpose of the Study:

  • To propose and validate an augmented asset pricing model (MAPM) incorporating macroeconomic determinants.
  • To explain the relationship between macroeconomic risks and U.S. stock returns.
  • To compare the efficacy of the MAPM against the widely used CAPM.

Main Methods:

  • Developed a non-traded factor model (MAPM) based on macroeconomic theory.
  • Included market return, U.S. prime rate, U.S. government long-term bond rate, and USD/EUR exchange rate.
  • Employed Bayesian estimation techniques (Bayes and t.Bayes) on S&P 500 monthly returns (2007-2019).

Main Results:

  • The MAPM demonstrated statistically significant superior forecasting, explanatory power, and model adequacy compared to CAPM.
  • Confirmed a significant positive effect of long-term bond rates and exchange rates on stock returns.
  • Bayesian analysis supported the MAPM's robustness and performance.

Conclusions:

  • The MAPM offers a more efficient and advantageous approach to asset pricing than CAPM.
  • Practitioners and researchers should consider adopting the MAPM for improved analysis and decision-making.
  • Macroeconomic variables play a crucial role in understanding and predicting stock market behavior.