Asset pricing on the capital market with nonmarketable assets: Evidence from Russian market

Abstract

The main goal of the research is to check whether the relationships between returns of the companies’ stocks and returns on non-marketable assets in Russia are sufficient to produce significant differences between the Mayers and Sharpe-Lintner risk measures. In order to achieve final goal 35 largest and most liquid companies in Russia are analyzed and the following steps are made: Estimation of Sharpe-Lintner’ betas for these 35 companies traded on the Russian stock market; Selection of a good enough proxy for the return on human capital in Russia; Estimation betas with non-marketable assets by using Mayers formula; Analysis whether the differences between the Mayers and Sharpe-Lintner risk measures are significant. Completion of those steps allows answering the key question of the research: do the non-marketable assets such as human capital and mergers and acquisitions deals have significant effect on companies’ stocks in Russia?” The main findings and conclusions of the study are: Including human capital into the CAPM as non-marketable asset does not lead to any statistically significant deviation of the predicted by two models returns and thus the results highlight that relationships between returns of the companies’ stocks and aggregate payoffs to economy’s human capital in Russia are insufficient to produce significant differences between the Mayers and Sharpe-Lintner risk measures The market of corporate control in Russia has quite significant impact on the returns of Russian companies and thus mergers and acquisitions deals completed on the Russian market should be considered when one estimates the cost of equity for the company traded on this market.