Provide a Modifier Pattern of Capital Assets Pricing Models Using Distress Risk Model and Momentum Premium

Subject Areas : International Journal of Finance, Accounting and Economics Studies

Mehrdad  Salehi ¹ (Assistance professor, Department of Accounting, Nourabad Mamasani Branch, Islamic Azad University, Nourabad Mamasani, Iran)
rezvan  hejazi ² (Professor, Department of Accounting, Khatam University, Management and Finance, Tehran, Iran.)
qodratallah  talebnia ³ (Associate professor, Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran)

Received: 2020-08-10 Accepted : 2020-11-19 Published : 2022-04-01

Keywords: Momentum premium, Capital Assets, Distress Risk,

Abstract :

The present study aims to provide a modifier pattern of capital assets pricing models (CAPM) using distress risk model and momentum premium. For this purpose, the researcher uses a theoretical matrix of the most widely used and most influential variables of the predicted model to analyze the data and measure the variables of the final model. In this research, applying portfolio research approach and significance test method for regression coefficients, and using a sample of 3520 quarterly firms of Tehran Stocks Exchange (TSE) during 2008 -2017, the hypothesizes are examined.The results of the empirical pricing model show that the average return of the formed portfolio is influenced by the momentum factor and expressed by the distress risk. After applying financial distress risk, the rate of expected return is descending and the distress premium is negative. The results also indicate that in the most distress investment portfolio of momentum premium, the winner stock returns are more than the loser stock returns and in the healthy firms, the portfolio return of the loser stocks is less than the portfolio return of the winner stocks.Originality/value-The existence of value premium and momentum premium in security returns is one of the key concepts to examine empirical capital asset pricing models (CAPM). The tendency of a security to continue movement in a single direction known as momentum. Momentum is the underlying factor in trend analysis of stock prices which is originated from the behavioral factors of investors.