THE DISTRIBUTION OF BETAS IN PRESENCE OF NONTRADED ASSETS
- Authors
- Hur, Seok-Kyun; Chung, Chune Young
- Issue Date
- Jan-2019
- Publisher
- WILEY
- Keywords
- CAPM beta; incomplete market; nontraded asset; portfolio choice; diversification
- Citation
- BULLETIN OF ECONOMIC RESEARCH, v.71, no.1, pp 90 - 112
- Pages
- 23
- Journal Title
- BULLETIN OF ECONOMIC RESEARCH
- Volume
- 71
- Number
- 1
- Start Page
- 90
- End Page
- 112
- URI
- https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/18396
- DOI
- 10.1111/boer.12154
- ISSN
- 0307-3378
1467-8586
- Abstract
- This study considers a capital assets pricing model (CAPM) in an incomplete financial market wherein not all risky assets are traded and the risk from non-traded assets is not orthogonal to that of the existing or traded assets. The model shows the extent of the divergence of the CAPM betas (true betas) from the traditional CAPM betas (perceived betas) in market equilibrium conditions in an incomplete market. Specifically, it implies that the more incomplete a financial market is, the wider is the discrepancy between the true and perceived betas, and the distribution of the perceived betas tends to centre more around 1 in an incomplete market than that of true betas. Empirical evidence in various settings support these results.
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