The link between the Shapley value and the beta factor

Karl Michael Ortmann ()
Additional contact information
Karl Michael Ortmann: Beuth University of Applied Sciences Berlin

Decisions in Economics and Finance, 2016, vol. 39, issue 2, No 8, 325 pages

Abstract: Abstract In this article, we provide a link between the Shapley value in cooperative game theory and the capital asset pricing model (CAPM) in finance. In particular, the Shapley value of a suitably defined cooperative game is closely related to the beta factor in the CAPM. The beta factor for any given security may be interpreted as the asset’s fairly allocated share of the market risk or as the asset’s average marginal contribution to the market risk, respectively. Other fairness properties and axioms of the Shapley value may be reinterpreted in this context to attain a deeper understanding of the beta factor and the connotation of systematic risk. Our game theoretic approach further allows for a generalisation of the CAPM with respect to arbitrary risk measures other than variance. Last but not least, we discuss the volatility of an asset’s theoretical fair assessment of risk and of its systematic risk, respectively. This result lends itself to face the challenge of an empirical investigation on real stock markets.

Keywords: CAPM; Beta factor; Shapley value; Market risk; Systematic risk (search for similar items in EconPapers)
JEL-codes: C71 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://link.springer.com/10.1007/s10203-016-0178-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:decfin:v:39:y:2016:i:2:d:10.1007_s10203-016-0178-0

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10203/PS2

DOI: 10.1007/s10203-016-0178-0

Access Statistics for this article

Decisions in Economics and Finance is currently edited by Paolo Ghirardato

More articles in Decisions in Economics and Finance from Springer, Associazione per la Matematica
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().