Capital market theory

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In microeconomics, capital market theory is understood to be several theories that deal with the relationship between risk and return of financial products on the money and capital markets .

General

The various capital market theories assume that the separate consideration of the returns of individual financial products is not very meaningful. Rather, the company that has issued a security ( issuer ) belongs to an overall market. In this overall market, there are interdependencies between the returns of individual issuers , which must be analyzed. This is because the return is influenced both by the issuer ( unsystematic risk ) and by the development of the overall market ( systematic risk ). Most capital market theories assume that the capital market is in equilibrium . So-called capital market anomalies can be observed empirically , which contradict this assumption.

Classical capital market theory

The classic capital market theory has been developed from portfolio theory and analyzes which securities prices or securities yields are in market equilibrium on a perfect capital market. Classical capital market theory is based on the principle that there is a linear relationship between risk and return, according to which higher returns can only be achieved through higher risk. It assumes the existence of a perfect capital market . According to this, every market participant acts completely rationally , has perfect information and strives to maximize benefits . There are no spatial, temporal or personal preferences . All commercial objects are homogeneous and of the same quality , there are no transaction costs , taxes or market barriers . The market participant is Homo oeconomicus as a rational, objective investor .

Classical capital market theory assumes that all market participants have access to all the information they need to value a financial product at all times. This results in a fundamental or equally weighted, fair price for a financial product. Price fluctuations are unpredictable, random deviations from this value. Harry Markowitz developed this classic capital market theory in 1952 as Portfolio Selection . James Tobin applied the Markowitz model in developing his money demand theory in 1958 . He expanded the classic theory to include the possibility of a risk-free capital investment . A negative weight for this type of investment would, similar to short selling in shares , corresponding to a borrowing. A further development of these models took place later in different stages. In 1964, William F. Sharpe defined the risk of an investment solely as its statistical volatility , i.e. the extent of fluctuations in stock exchange prices . In 1965 John Lintner dealt with the valuation of risky financial products, Jack Treynor contributed to the further understanding of the Capital Asset Pricing Model (CAPM) with the Treynor quotient named after him . Jan Mossin completed the CAPM that was now created in 1966.

Eugene Fama developed the concept of market efficiency in 1970 . Accordingly, a market is efficient when its market prices reflect all available information . Robert C. Merton expanded the CAPM in 1973 by working on the Black-Scholes model for valuing financial options . By Stephen Ross developed in 1976 arbitrage pricing theory demands, unlike the CAPM no market equilibrium, but merely an arbitrage-free securities market. The CAPM is the most important pricing model.

Neoclassical capital market theory

The neoclassical capital market theory is considered to be the most important approach in science for determining security prices in the financial markets and builds on the expected utility theory developed by John von Neumann and Oskar Morgenstern in 1944 , in which rational actors maximize the expected value of their risk utility function. It forms the basis of rational action when making decisions under risk . She postulates that if the preference of a decisive actor with regard to risky alternative courses of action fulfills the axioms of completeness, continuity and independence, a utility function exists whose expected utility reflects the preference.

Further capital market theories

The option price theory is to be understood as a special theory of speculation , the first useful model of which was presented by Louis Bachelier as early as 1900 . The Business Administration provided the tools for a third stage of analysis, the theory of the microstructure of financial markets ( microstructure theory ) specifically for the study of intra-organizational processes of a trading platform shall apply. The microstructure theory is one of the more recent developments in capital market theory and primarily examines elements of the trading process, the behavior of the actors ( traders ), their methods of obtaining information, information processing, pricing and the influence of the trading organization on the actors.

Capital market imperfection

Both the classics and the neoclassical capital market theory initially assume the ideal-typical state of perfect capital markets. In reality, however, there is a capital market imperfection due to transaction costs , information asymmetries , limited rational behavior, liquidation costs and non- risk-diversified portfolios .

See also

literature

  • Manfred Steiner / Christoph Bruns: Securities Management. 7th edition Schäffer-Poeschel, Stuttgart 2000, ISBN 3-7910-1542-7 .
  • Hans-Markus Callsen-Bracker / Hans Hirth: Risk Management and Capital Market. Callsen-Bracker, Berlin 2009, ISBN 978-3-941797-00-0 .
  • Jean-Pierre Danthine / John B. Donaldson: Intermediate Financial Theory. 2nd edition. Elsevier Academic Press, Amsterdam 2005, ISBN 0-12-369380-2 .

Individual evidence

  1. ^ Harry Markowitz: Portfolio Selection , in: Journal of Finance, Vol. 7, 1952, pp. 77 ff.
  2. ↑ James Tobin: Liquidity Preference as a Behavior Towards Risk , in: Review of Economic Studies, Vol. 26, 1958, pp. 65 ff.
  3. ^ William F. Sharpe: Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk , in: Journal of Finance, Vol. 19, September 1964, pp. 425 ff.
  4. ^ John Lintner: The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets , in: Review of Economics and Statistics, Vol. 47, February 1965, pp. 13 ff.
  5. ^ Jack Treynor: How to rate management of investment funds , in: Harvard business review 43.1, 1965, p. 63 ff.
  6. ^ Jan Mossin: Equilibrium in a Capital Asset Market , in: Econometrica, Vol. 34, October 1966, p. 768 ff.
  7. ^ Eugene Fama: The Behavior of Stock Market Prices , in: Journal of Business, January 1965, p. 34 ff.
  8. ^ Robert C. Merton: A intertemporal Capital Asset Pricing Model , in: Econometrica, September 1973, p. 867 ff.
  9. ↑ Stephen Ross: The Arbitrage Theory of Capital Asset Pricing , in: Journal of Economic Theory, December 1976, p. 343 ff.
  10. ^ Oskar Morgenstern / John von Neumann: Theory of Games and Economic Behavior , 1944, p. 1
  11. Jump up ↑ Günter Bamberg / Adolf Gerhard Coenenberg: Business decision-making , 1996, p. 74
  12. ↑ Louis Bachelier: Théorie de la Speculation , in: Annales scientifiques de l'École Normale Supérieure. Ser. 3, Vol. 17, 1900, pp. 21 ff.
  13. ^ Günter Franke: Newer developments in the field of financial market theory , in: WiSt Heft 8, 1993, p. 389
  14. ↑ Andrei Shleifer: Inefficient Markets: An Introduction to Behavioral Finance , 2000, p 1857 ff.