Portfolio Selection and Asset Pricing---Three-Parameter Framework

Yusif Simaan
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Yusif Simaan: Graduate School of Business Administration, Fordham University, 113 West 60th Street, New York, New York 10023

Management Science, 1993, vol. 39, issue 5, 568-577

Abstract: Idiosyncratic security risks are modelled as following a joint spherical distribution characterized by a mean vector and a generalized covariance matrix. Skewness is generated by a single factor for the whole economy, but upon which different securities have different loadings. This results in three-fund separation---two funds to span the spherical risk and one more fund to span the additional skewness risk. A three-parameter normative portfolio analysis that allows short sales restrictions is developed. In addition, a three-parameter capital asset pricing model is provided.

Keywords: finance; portfolio analysis; capital asset pricing; elliptical distributions; skewness in portfolio analysis (search for similar items in EconPapers)
Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:39:y:1993:i:5:p:568-577

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