Key research themes
1. How do multifactor extensions to the Capital Asset Pricing Model improve empirical asset return explanations?
This theme investigates the progression from the traditional single-factor CAPM to more complex multifactor models that incorporate additional risk factors such as size, value, profitability, investment, momentum, and human capital. Research in this area focuses on improving the explanatory power of asset pricing models for cross-sectional variations in stock returns and addressing empirical anomalies that the CAPM fails to explain. These multifactor models are critically tested across different markets, including emerging economies, using rigorous econometric methodologies such as Fama-MacBeth regressions and GMM estimations.
2. What are the theoretical and empirical critiques of the CAPM and how have alternative approaches like Arbitrage Pricing Theory and arbitrage-based asset pricing addressed its limitations?
This theme revolves around the foundational critiques of the Capital Asset Pricing Model (CAPM), both empirical and theoretical, and alternative asset pricing theories that emerge to address identified shortcomings. It emphasizes the Arbitrage Pricing Theory (APT), Ross's arbitrage model, and critiques regarding market rationality, equilibrium assumptions, and empirical failings. The research under this theme also explores how these alternative frameworks potentially offer more general and robust explanations for asset returns and risk measurement without relying on restrictive CAPM assumptions.
3. How does the incorporation of Environmental, Social, and Governance (ESG) factors influence asset pricing and price discovery processes in financial markets?
This research theme examines the evolving integration of ESG criteria into asset pricing models and market price discovery, focusing on empirical evidence that ESG factors affect expected returns, risk premia, and dynamics of spot and futures markets. Studies apply methodologies such as Generalized Method of Moments (GMM) and time-series causality testing to dissect the role of ESG scores, disclosures, and adjustments in influencing asset prices across sectors and economies. This area is critical as sustainable investing gains momentum and ESG considerations increasingly influence investors' risk-return tradeoffs.