A Generalization of the CAPM Based on a Property of the Covariance Operator

Etienne Losq and John Peter D. Chateau

Journal of Financial and Quantitative Analysis, 1982, vol. 17, issue 5, 783-797

Abstract: A key assumption behind the traditional capital asset pricing model (CAPM) is the joint normality of security returns. Recently, however, this assumption has been relaxed in at least two directions. First, the emergence of continuous-time models has shifted emphasis from discrete-time random variables to continuous-time diffusion processes, with log-normality (as opposed to normality) for security prices in the stationary case. Second, the recognition that the CAPM is difficult to test empirically has led to the development of an asset pricing theory based on an arbitrage argument in large markets and free of any distributional assumption.

Date: 1982
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