Developing the Capital Asset Pricing Model Using the Noise Based Behavioral Model (N-CAPM)
Subject Areas : International Journal of Finance, Accounting and Economics StudiesMahdi Barasoud 1 , Gholamreza Zomorodian 2 , Fraydoon Rahnamaye roodposhti 3
1 - Faculty of Management and Economics,Islamic Azad University, Science And Research Branch,Iran,Tehran
2 - Department of Business Administration, Islamic Azad University, Tehran Center, Tehran, Iran.
3 - Department of Management and Accounting, Tehran Science and Research Unit, Islamic Azad University, Tehran, Iran
Keywords: developing the Capital Asset Pricing Model, noise, stock valuation,
Abstract :
In this study, the behavioral analysis model of noise-based capital asset pricing or human judgments was presented. In this direction, using five experts’ opinions of capital market, who had not been related each other, the stock valuation of five selected corporations was defined, using the methods: the Dividend Discount Model (DDM), Free Cash Flow to Equity (FCFE), and Price-Earnings ratio (P/E), for the time horizon of 2024-2026. Standard deviation is used as a parameter for noise; as the more standard deviation, the more noise and increased possibilities of error in the stock valuation. According the noise consequences, the valuation of research sample was placed in the 12%-61%. Next, the adjusted beta (noise-based beta) was calculated. Stock beta is an index to define the price of a stock as compared with the whole stock price index. In this study, the new beta for stock valuation was calculated (the noised-based adjusted beta) and a new model was introduced for CAPM. Based on the results of this part, considering noise in the process of stock valuation decreases the fluctuations or risks of stocks as compared with other stocks of the market and can produce less inflammation and fluctuation in values. Therefore, we conclude that not considering the noise level in asset valuation can cause asset price deviation, make them unreal, and more increase the prices.