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Title: Empirical models of asset pricing, with particular reference to the modelling of zero-dividend stocks
Author: McManus, Ian David
ISNI:       0000 0001 3625 8001
Awarding Body: University of Southampton
Current Institution: University of Southampton
Date of Award: 2001
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The appropriate pricing of financial assets is crucial to the proper allocation of capital to investment projects. This study examines theoretical models of asset pricing, commencing with portfolio theory (Markowitz (1952, 1959)) and the Capital Asset Pricing Model (CAPM) of Sharpe (1964), Lintner (1965) and Mossin (1966), leading up to the multifactor models of Fama and French (1993). In tracing this evolution of models, consideration is given to alternative schools of thought in relation to the efficiency of capital markets; the ideas of the 'Efficient Markets' adherents are discussed extensively, along with the contrasting views of those favouring a 'Behavioural' context to the process of price-setting. Based upon empirical models developed with regard to the above body of theory, and also taking into account the influences of more recent approaches to model building and econometric techniques, the study makes use of a rich set of data related to the United Kingdom stock market over the period 1955-97. Data from the London Business School 'London Share Price Database' comprising over 800,000 monthly records, is used to construct portfolios. These are analysed with a view to ascertaining the determinants of stock returns, and the nature of the relationships involving, in particular, Dividend Yield and Payout Ratio; controlling for Covariance Risk, Seasonality and Market Capitalisation. With regard to the former, a unique class of stocks, those which pay 'no' dividends, are studied in particular detail - with the justification that comparatively little prior research has been carried out in this area of study, and virtually none at all using UK data. The empirical study is divided into three sections, which investigate, firstly, the hypothesised determinants listed above, in the context of an extended 'CAPM' form of model. Secondly, a section is devoted to examining the migration patterns of stocks as they evolve and diffuse among the different fractiles, or 'strata', of Yield levels. Thirdly, the categorisation of 'Expanding' versus 'Contracting' stocks, as measured by year-on-year market capitalisation changes, is examined for its relevance in connection with Zero-Dividend stocks, which are known to comprise a heterogeneous mix of rising, dynamic firms and older, established companies, many of which are in decline.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Financial assets