A CAPM with higher moments: theory and econometrics

Gustavo M. de Athayde and Renato Flôres Junior

No 317, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: We develop portfolio choice theory taking into consideration the first p~ moments of the underIying assets distribution. A rigorous characterization of the opportunity set and of the efficient portfolios frontier is given, as well as of the solutions to the problem with a general utility function and short sales allowed. The extension of c1assical meanvariance properties, like two-fund separation, is also investigated. A general CAPM is derived, based on the theoretical foundations built, and its empirical consequences and testing are discussed

Date: 1997-10-01
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