Mean Lower Partial Moment Valuation and Lognormally Distributed Returns

Wayne Y. Lee and Ramesh K. S. Rao
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Wayne Y. Lee: Leavey School of Business Administration, Santa Clara University, Santa Clara, California 95053
Ramesh K. S. Rao: Graduate School of Business, University of Texas, Austin, Texas 78712

Management Science, 1988, vol. 34, issue 4, 446-453

Abstract: In this paper we develop a capital asset pricing model in a mean lower partial moment framework. Specifically, we show that when partial moments are computed about the expected risky portfolio return, optimal portfolio choice in a mean lower partial framework permits a two-fund portfolio separation between a riskless asset and a "market" portfolio of risky assets. In this new framework, risk is measured as semideviation (for second degree stochastic dominance), and semivariance (for third degree stochastic dominance). Further, when security returns are lognormally distributed and "small risk," this new mean lower partial moment valuation specializes to the mean-logarithmic variance capital asset pricing model.

Keywords: mean; partial; moment; valuation (search for similar items in EconPapers)
Date: 1988
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:34:y:1988:i:4:p:446-453

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