Capital Asset Pricing Model Adjusted for Anchoring

Siddiqi Hammad

MPRA Paper from University Library of Munich, Germany

Abstract: I show that adjusting CAPM for anchoring provides a unified explanation for the size, value, and momentum effects. Anchoring adjusted CAPM (ACAPM) predicts that stock splits are associated with positive abnormal returns and an increase in return volatility, whereas the reverse stock-splits are associated with negative abnormal returns and a fall in return volatility. Existing empirical evidence strongly supports these predictions. Anchoring has the effect of pushing up the equity premium, a finding which is relevant for the equity premium puzzle.

Keywords: Size Premium; Value Premium; Behavioral Finance; Stock Splits; Equity Premium Puzzle; Anchoring Heuristic; CAPM; Asset Pricing (search for similar items in EconPapers)
JEL-codes: G00 G02 G11 G12 G30 (search for similar items in EconPapers)
Date: 2015-10-01
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:67668

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