A Capital Asset Pricing Model with Variable Asset Supply
John F. McDonald
(Senior Associate Dean and Professor of Finance and Economics College of Business Administration, University of Illinois at Chicago,601 S. Morgan St., Chicago, IL 60607)
643
Abstract
The assumption of variable asset supply is incorporated into the standard capital asset pricing model because of consistent and strong empirical results showing that equity is issued when share prices are high. The results of the model show that the “beta” of the asset is influenced by both its demand and supply functions. Available empirical evidence suggests that the supply of corporate equity, over a time period of a year, is inelastic and that demand is elastic. More empirical research is needed.
Citation
McDonald, J.F. (2003), "A Capital Asset Pricing Model with Variable Asset Supply", Review of Accounting and Finance, Vol. 2 No. 4, pp. 5-19. https://doi.org/10.1108/eb043389
Publisher
:MCB UP Ltd
Copyright © 2003, MCB UP Limited