Quick Search:

uzh logo
Browse by:
bullet
bullet
bullet
bullet

Zurich Open Repository and ArchiveĀ 

Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-52108

Giorgi, Enrico De; Post, Thierry (2005). Second Order Stochastic Dominance, Reward-Risk Portfolio Selection and the CAPM. Working paper series / Institute for Empirical Research in Economics No. 213, University of Zurich.

[img]
Preview
PDF
505kB

Abstract

"Starting from the reward-risk model for portfolio selection introduced in De Giorgi (2004), we derive the reward-risk Capital Asset Pricing Model (CAPM) analogously to the classical mean-variance CAPM. The reward-risk portfolio selection arises from an axiomatic definition of reward and risk measures based on few basic principles, including consistency with second order stochastic dominance. With complete markets,nwe show that at any financial market equilibrium, investors’ optimal allocations arencomonotonic and therefore the capital market equilibrium model can be reduced to a representative investor model. Moreover, the pricing kernel is an explicitly given,nmonotone function of the market portfolio return, corresponding to the increments of the distortion function characterizing the representative investor’s risk perceptions.nFinally, an empirical application shows that the reward-risk CAPM better captures the cross-section of US stock returns than the mean-variance CAPM does."

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
DDC:330 Economics
Language:English
Date:January 2005
Deposited On:29 Nov 2011 22:32
Last Modified:09 Jul 2012 05:02
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

Users (please log in): suggest update or correction for this item

Repository Staff Only: item control page