Anchoring Adjusted Capital Asset Pricing Model

Hammad, Siddiqi (2015): Anchoring Adjusted Capital Asset Pricing Model.

Abstract

What happens when the capital asset pricing model (CAPM) is adjusted for the anchoring and adjustment heuristic of Tversky and Kahneman (1974)? The surprising finding is that adjusting CAPM for anchoring provides a plausible unified framework for understanding almost all of the key asset pricing anomalies. The anomalies captured in the theoretical framework include the well-known size, and value effects, high-alpha-of-low-beta-stocks, accruals, low volatility, momentum effect, stock-splits, and reverse stock-splits. The equity premium is also larger with anchoring. This suggest that the anchoring adjusted capital asset pricing model (ACAPM) may provide the needed unifying structure to behavioral finance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Size Premium, Value Premium, Behavioral Finance, Stock Splits, Equity Premium Puzzle, Anchoring Heuristic, CAPM, Asset Pricing, Momentum Effect
• Subjects: G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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