Premium
Derivation of the Capital Asset Pricing Model without Normality or Quadratic Preference: A Note
Author(s) -
KWON YOUNG K.
Publication year - 1985
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.1540-6261.1985.tb02398.x
Subject(s) - capital asset pricing model , normality , preference , quadratic equation , economics , consumption based capital asset pricing model , portfolio , econometrics , market portfolio , residual , mathematical economics , financial economics , mathematics , microeconomics , statistics , geometry , algorithm
Derivation of the capital asset pricing model requires various assumptions including normality or quadratic preference. The objective of this note is to show that the normality or quadratic preference assumption can be replaced by the fair game condition that assets' residual returns have zero mean conditional upon the return of the market portfolio.