Global effects in capital asset pricing model

Abstract

Purpose: CA PM development in the context of globalization. Discussion: CA PM is an important model in modern financial theory. You can use it to evaluate the profitability of any asset. Derived from the optimal portfolio proposed by Markowitz it is used in a Sharpe diagonal model. However, CA PM overlooks globalization, increased the degree of which is very noticeable in the financial markets. Therefore, the issue of a modified version of this model, which takes into account the effects of globalization, is topical. Results: we present two approaches to implement the linear and nonlinear methods of reflecting the effects of globalization in the CA PM. Both linear and nonlinear cases are implemented the idea of a two-level mechanism reflected the effects of globalization. This mechanism assumes that globalization affects the market, and then changed market determines the expected return on assets. In the econometric model with linear globalization effects we use principal components, and in model with nonlinear effect – logit model. In empirical part we show that quantitative simulation results turned up predictable and well-interpretable.