Adjusting the capital asset pricing model for the short-run with liquidity proxies, while accounting for denials and deceptions in financial markets
Authors
Mooney, John J., IV
Subjects
capital asset pricing model
liquidity
limit order book
order types
sensitivity
volatility
high-frequency trading
algorithmic trading
alternative trading systems
efficient market hypothesis
adaptive market hypothesis
exchange market fragmentation
adverse selection
informed traders
information warfare
information operations
operations security
military deception
security models
operational indicators
liquidity
limit order book
order types
sensitivity
volatility
high-frequency trading
algorithmic trading
alternative trading systems
efficient market hypothesis
adaptive market hypothesis
exchange market fragmentation
adverse selection
informed traders
information warfare
information operations
operations security
military deception
security models
operational indicators
Advisors
Buettner, Raymond R.
Menichini, Amilcar
Date of Issue
2014-03
Date
Mar-14
Publisher
Monterey, California: Naval Postgraduate School
Language
Abstract
William Sharpe's 1964 capital asset pricing model relies heavily on an accurate assessment of the asset's sensitivity to the broader market, termed _. By modifying the classic approach to incorporate liquidity of the asset, designated _', short-term return estimates may be improved. Specifically, in this research, the limit order book is used as a short-term proxy for liquidity assessments. Unfortunately, precise data were unavailable to test: however, detailed realistic examples are outlined in order to explore both rationale and critiques of the adjusted model. In light of the adjusted CAPM, modern market conditions, such as the rise in both high-frequency trading and alternative trading systems, are investigated to determine their impact on the model and asset pricing. Parallels can be drawn to appreciate these implementation obstacles under such information operation paradigms as denial, deception, and counterdeception. These topics, the protection of critical information from leakage, as well as the advancement and detection of deliberate misinformation, are increasingly critical for asset pricing. Furthermore, in response to these implementation obstacles, short-term asset pricing research is explored under both the efficient and adaptive market hypotheses. In conclusion, the thesis offers policy makers and regulators recommendations and considerations for the evolving financial landscape.
Type
Thesis
Description
Series/Report No
Department
Information Sciences (IS)
Graduate School of Business & Public Policy (GSBPP)
Organization
Identifiers
NPS Report Number
Sponsors
Funder
Format
Citation
Distribution Statement
Approved for public release; distribution is unlimited.
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.