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On the Class of Elliptical Distributions and their Applications to the Theory of Portfolio Choice
Author(s) -
OWEN JOEL,
RABINOVITCH RAMON
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb02499.x
Subject(s) - capital asset pricing model , covariance matrix , portfolio , class (philosophy) , mutual fund separation theorem , matrix (chemical analysis) , mathematics , distribution (mathematics) , basis (linear algebra) , separation property , measure (data warehouse) , mathematical economics , econometrics , economics , statistical physics , financial economics , replicating portfolio , mathematical analysis , portfolio optimization , statistics , physics , computer science , materials science , geometry , artificial intelligence , composite material , database
It is shown that the class of elliptical distributions extend the Tobin [14] separation theorem, Bawa's [2] rules of ordering uncertain prospects, Ross's [12] mutual fund separation theorems, and the results of the CAPM to non‐normal distributions, which are not necessarily stable. Further, the mean‐covariance matrix framework is generalized to a mean‐characteristic matrix framework in which the characteristic matrix is the basis for a spread or risk measure, and a generalized equilibrium pricing equation is arrived at. The implications to empirical testing of the CAPM and modeling the empirical distribution of speculative prices are discussed.