Theoretical Framework for Stock Pricing Process based on Micro-Economic Decision Model
Theoretical Framework for Stock Pricing Process based on Micro-Economic Decision Model
Author(s): Vitaly KaganovSubject(s): Micro-Economics, Financial Markets
Published by: Wydział Ekonomii Uniwersytetu Ekonomicznego w Poznaniu
Keywords: Asset Pricing; CAPM; Risk Appetite; Economic Approach
Summary/Abstract: The most common model for asset pricing (CAPM) is problematic and does not match the reality. In this article, I introduce a theoretical framework for a new model which aims at avoiding the problems of CAPM and keeping its advantages, therefore allowing universality of asset pricing. The model is built on the economic principles, using a budget constraint and a Risk Appetite (RA) function. It is based on the micro-economic decision model, involving an expected value and dividing a stock price to objective and subjective prices. As a result, rational based individuals, just like individuals with non-rational factors, may use the model to calculate a future price stock in exactly the same way.
Journal: Research Papers in Economics and Finance
- Issue Year: 2/2017
- Issue No: 2
- Page Range: 29-37
- Page Count: 9
- Language: English