Stable Models in Testable Asset Pricing

Bertrand Gamrowski and Svetlozar T. Rachev
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Bertrand Gamrowski: École Polytechnique
Svetlozar T. Rachev: University of California

A chapter in Approximation, Probability, and Related Fields, 1994, pp 223-235 from Springer

Abstract: Abstract The goal of this paper is to provide tests of Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) in the case where asset prices follow symmetric Pareto-stable distributions. For the CAPM, we give a computable form of the “beta”, that can be deduced from Fama’s and Ross’ works in this field, or from a direct proof. For the APT, we study an asymptotic stable version and we provide an original testing procedure. In both cases, our work is possible after we have established mathematical properties concerning the structure of spaces of symmetric Pareto-stable random variables.

Keywords: Asset Price; Spectral Measure; Asset Return; Capital Asset Price Model; Idiosyncratic Risk (search for similar items in EconPapers)
Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4615-2494-6_17

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DOI: 10.1007/978-1-4615-2494-6_17

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