Production or consumption: An empirical test of production-based asset pricing model in the Chinese stock market
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    Abstract:

    The production-based capital asset pricing model ( PCAPM) derives asset prices in a general equi-librium conditional on profit maximization for corporate investors. Compared to the consumption-based capital asset pricing model,PCAPM can better satisfy the assumptions such as perfect information and rational inves-tors. This paper considers asset pricing in a PCAPM framework,and decomposes the production beta into a cash flow beta and a discount rate beta based on the present-value model. The empirical analysis is performed using data on aggregate investment and stock prices. The findings confirm that the cash flow beta from PCAPM is a significant pricing factor and can explain the cross-section variations in risk premium for different stocks in the Chinese stock market,while CCAPM fails to explain such variations.

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  • Online: April 14,2018
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