Modelling of capital asset pricing by considering the lagged effects

Abstract

In this paper the problem of modelling the Capital Asset Pricing Model (CAPM) with the effect of the lagged is discussed. It is assumed that asset returns are analysed influenced by the market return and the return of risk-free assets. To analyse the relationship between asset returns, the market return, and the return of risk-free assets, it is conducted by using a regression equation of CAPM, and regression equation of lagged distributed CAPM. Associated with the regression equation lagged CAPM distributed, this paper also developed a regression equation of Koyck transformation CAPM. Results of development show that the regression equation of Koyck transformation CAPM has advantages, namely simple as it only requires three parameters, compared with regression equation of lagged distributed CAPM.