Abstract
The Capital Assets Pricing Model (CAPM) provides insights into the equilibrium price of stocks but does not offer a structural framework for short range price movements.
In this paper, Srinivasan, Mohapatra, and Sahu use the System Dynamics methodology and demonstrate through their model how short-run price movements can be explained. This model may be useful to finance managers who are concerned about the equity issue price for pricing new issues when they go to the capital market. It is also useful to financial institutions interested in buying and selling securities.
The authors exhort researchers to develop a unified model combining CAPM and the System Dynamics model to explain long-run and short-run price movements.
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