SEM217: Paul Kaplan, Morningstar: A Popularity Asset Pricing Model

Tuesday, February 21st @ 11:00-12:30 PM (639 Evans Hall)

A Popularity Asset Pricing Model

Paul Kaplan, Morningstar

This paper presents a formal model for theory of popularity as laid out informally by Idzorek and Ibbotson in their seminal paper, “Dimensions of Popularity (Journal of Portfolio Management, 2014). The paper does this by extending the capital asset pricing model (CAPM) to include security characteristics that different investors regard differently. This leads to an equilibrium in which: 1) The expected excess return on each security is a linear function of its beta and its popularity loadings which measure the popularity of the security based on its characteristics relative to the those of the beta-adjusted market portfolio; 2) Each investor holds a different portfolio based on his attitudes toward security characteristics; and 3) The market portfolio is not on the efficient frontier. I call this extended model the Popularity Asset Pricing Model, or PAPM for short. Read the paper this talk is based on.