The Stock Market is Just a Game

Ulf von Lilienfeld-Toal
2004 Social Science Research Network  
The CAPM is a powerful tool to analyse stock markets. Yet, empirical anomalies remain, e.g.: the equity premium or low risk free interest rate puzzle, IPO stock price behavior around unlock dates and high trading volumes. This paper links corporate finance and asset pricing models and derives these anomalies as rational equilibrium behaviour. The main ingredient is the observation that a firm's value is endogenous. It depends on effort decisions of shareholders which are determined by their
more » ... rmined by their holdings and therefore ultimately by the stock price. It is argued that merging corporate finance and asset pricing helps to further understand stock markets. JEL Classification:G 1, G 3
doi:10.2139/ssrn.497042 fatcat:a6ghtnlhhzcy7euqcycuaovt6q