Title: Multifactor capital asset pricing model in emerging and advanced markets using two error components model

Authors: Radamanee Noppasit; Woraphon Yamaka; Paravee Maneejuk; Wachirawit Puttachai; Songsak Sriboonchitta

Addresses: Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand ' Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand ' Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand ' Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand ' Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand

Abstract: We aim to explore the macroeconomic factors that are able to influence the return of the stock market in emerging and advanced markets. To find such factors, we analyse the data from three emerging countries and three developed countries. The multifactor capital asset pricing model (CAPM), which includes the overall market return and the selected macroeconomic variables, is employed to achieve our study. However, the assumption of CAPM, which displayed only one error term, has been concerned in our analysis as one error term may fail to capture and define the whole erroneousness in the model. Thus, we prove the existence of the second error components of the CAPM. In addition, the concept of a seemingly unrelated regression (SUR) model is also applied to join the CAPM of each country. As a consequent, we propose a new SUR model which compounds two errors to investigate the multifactor CAPM.

Keywords: emerging and advanced markets; multifactor CAPM; copula approach; seemingly unrelated regressions; SUR; two error components model.

DOI: 10.1504/IJADS.2020.106427

International Journal of Applied Decision Sciences, 2020 Vol.13 No.2, pp.247 - 266

Accepted: 22 Jun 2019
Published online: 18 Mar 2020 *

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