Working Paper: NBER ID: w23226
Authors: Lu Zhang
Abstract: A new class of Capital Asset Pricing Models (CAPM) arises from the first principle of real investment for individual firms. Conceptually as "causal"' as the consumption CAPM, yet empirically more tractable, the investment CAPM emerges as a leading asset pricing paradigm. Firms do a good job in aligning investment policies with costs of capital, and this alignment drives many empirical patterns that are anomalous in the consumption CAPM. Most important, integrating the anomalies literature in finance and accounting with neoclassical economics, the investment CAPM succeeds in mounting an efficient markets counterrevolution to behavioral finance in the past 15 years.
Keywords: No keywords provided
JEL Codes: E13; E22; G12; G14; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment policies (G11) | Expected returns (G17) |
| Investment levels (G31) | Expected returns (G17) |
| Expected profitability (H43) | Expected returns (G17) |
| Real investment practices (G31) | Asset pricing models (G19) |