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Baryonic Beta Dynamics: The Econophysics of Systematic Risk

  • James Ming Chen
Chapter
Part of the Quantitative Perspectives on Behavioral Economics and Finance book series (QPBEF)

Abstract

The conventional capital asset pricing model remains the dominant paradigm among financial practitioners, if not among scholars of finance. The preferred academic approach—Fama and French’s three-factor model—assigns greater weight to book-to-market ratios and firm size as factors affecting the cross-section of stock returns. In order to rehabilitate the CAPM and its near cousin, the efficient market hypothesis, this book proposes to bifurcate beta (the CAPM’s basic measure of systematic risk) along three vectors: either side of mean returns, relative volatility versus correlation, and cash-flow versus discount-rate effects. These three divisions in beta correspond to the three generations of quarks and leptons in the Standard Model of particle physics.

Copyright information

© The Author(s) 2017

Authors and Affiliations

  1. 1.College of LawMichigan State UniversityEast LansingUSA

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