Nonmarketable Assets Version of the CAPM: The Case of the Russian Stock Market

Alexander V. Bukhvalov; Lasha Z. Bokuchava

doi:10.21638/spbu18.2018.201

Authors

Alexander V. Bukhvalov Graduate School of Management, St. Petersburg University, Russia https://orcid.org/0000-0001-6358-710X
Lasha Z. Bokuchava Graduate School of Management, St. Petersburg University, Russia

DOI:

https://doi.org/10.21638/spbu18.2018.201

Abstract

The paper deals with a modification of the CAPM, being called the Mayers model, which takes into account the existence of nonmarketable assets. Human capital is the classic example of such assets though we present and discuss some other important examples. This approach, as well as more advanced conditional CAPM, gives a correction to traditional CAPM beta coefficient as a measure of market risk. In this paper we present two attempts to test CAPM with nonmarketable assets. First, we start from analysis of the small size effect of the Russian stock market. We show that in this case the Mayers model gives the possibility of substantial improvement of risk exposure estimate. Second, empirical analysis in the case of human capital shows no impact of the Mayers model in all sectors of the Moscow Stock Exchange other than Innovation.

Keywords:

nonmarketable assets, CAPM, the Mayers model, Russian stock market, human capital

Downloads

Download data is not yet available.

References

REFERENCES

Babenko I., Boguth O., Tserlukevich Y. 2016. Idiosyncratic cash flows and systematic risk. Journal of Finance 71 (1): 425–455.

Berk J. B., Walden J. 2013. Limited capital market participation and human capital risk. Review of Asset Pricing Studies 3 (1): 1–37.

Berk J. B., Binsbergen van J. H. 2017. How do investors compute the discount rate? They use the CAPM. Financial Analyst Journal 73 (2): 25–32.

Bukhvalov A. V. 2008. Asymmetry between insiders and outsiders: The problem of duality of companies’ assets valuation. Russian Management Journal 6 (4): 17–48. (In Russian)

Bukhvalov A. V. 2016. Managerial theory of firm: Towards a synthesis of finance and strategic management. Russian Management Journal 14 (4): 105–126. (In Russian)

Copeland T. E., Weston J. F., Shastri K. 2005. Financial Theory and Corporate Policy. 4th ed. Pearson Addison Wesley: Boston, MA.

Ejara D. D., Krapl A. A., O'Brien T. J., Ruiz de Vargas S. 2018. Comparison of Cost of Equity Models: New International Evidence. University of Connecticut School of Business Research Paper No. 18-04. Available at SSRN: https://ssrn.com/abstract=3023501; http://dx.doi.org/10.2139/ssrn.3023501

Fama E. F., French K. R. 1992. The cross-section of expected stock returns. Journal of Finance 47 (2): 427–465.

Fama E. F., Schwert G. W. 1977. Human capital and capital market equilibrium. Journal of Financial Economics 4 (1): 95–125.

Grant R. M. 2016. Contemporary Strategy Analysis. 9th ed. Wiley.

Goldenberg D. H., Chiang R. 1983. Systematic risk and the theory of the firm. A re-examination. Journal of Accounting and Public Policy 2 (1): 63–72.

Jagannathan R., Wang Z. 1996. The conditional CAPM and the cross-section of expected returns. Journal of Finance 51 (1): 3–53.

Jagannathan R., Kubota K., Takehara H. 1998. Relationship between labor-income risk and average return: Empirical evidence from the Japanese stock market. Journal of Business 71 (3): 319–347.

Jensen M. С. 1972. Capital markets: Theory and evidence. Bell Journal of Economics and Management Science 3 (2): 357–398.

Mayers D. 1972. Nonmarketable assets and capital market equilibrium under uncertainty. In: Jensen M. C. (ed.). Studies in the Theory of Capital Markets. Praeger: N. Y.; 223–248.

Mayers D. 1973. Nonmarketable assets and capital market prices in the absence of a riskless asset. Journal of Business 46 (2): 258–267.

Schultz T. W. 1960. Capital formation by education. Journal of Political Economy 68 (6): 571–583.

Teoh S. H., Welch I., Wazzan C. P. 1999. The effect of socially activist investment policies on the financial markets: Evidence from the South African boycott. Journal of Business 72 (1): 35–89.

Wooldridge J. M. 2016. Introductory Econometrics: A Modern Approach. 6th ed. South-Western College Publishing.

World Development Indicators. 2017. The World Bank. [Electronic resourse]. https://data.worldbank.org/products/wdi (accessed: 15.05.2018).