Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-15T16:35:59.214Z Has data issue: false hasContentIssue false
  • English
  • Français

A Capital Asset Pricing Model with Investors Taxes and Three Categories of Investment Income

Published online by Cambridge University Press:  06 April 2009

Mitchell Trauring
Get access Rights & Permissions [Opens in a new window]

Extract

The classical Capital Asset Pricing Model of Sharpe [5] and Lintner [4] has been generalized by Brennan [2, 3] to include the effect of investors' taxes. In Brennan's formulation, investors' portfolio incomes are divided into capital gains and ordinary income components whose marginal tax rates differ both from one another and across investors. In this paper, Brennan's model is further generalized to admit tax–exempt portfolio income as well. The results, which may accord with empirical data better than have those of the less general models, include a three–fund separation theorem, a three–term Capital Asset Pricing Formula which relates the excess rate of return of any risky portfolio to those of three fundamental risky portfolios whose rates of return are pairwise uncorrelated, and a representation suitable for empirical testing.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 3 , September 1979 , pp. 537 - 545
Copyright
Copyright © School of Business Administration, University of Washington 1979

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Black, F.; Jensen, M. C.; and Scholes, M.. “The Capital Asset Pricing Model: Some Empirical Tests.” In Studies in the Theory of Capital Markets, edited by Jensen, M. C.. New York: Praeger (1972).Google Scholar
[2]Brennan, M. J. “Investor Taxes, Market Equilibrium and Corporate Finance.” Ph. D. Dissertation, M. I. T., Cambridge, Mass. (1970).Google Scholar
[3]Brennan, M. J. “Taxes, Market Valuation and Corporate Financial Policy.” National Tax Journal, Vol. 23, No. 4 (12 1970).CrossRefGoogle Scholar
[4]Lintner, J. “Security Prices, Risk, and Maximal Gains from Diversification.” Journal of Finance, Vol. 20, No. 5 (12 1965).Google Scholar
[5]Sharpe, W. F. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, Vol. 19, No. 4 (09 1964).Google Scholar