Introducing higher moments in the CAPM: some basic ideas

Gustavo M. de Athayde and Renato Flôres Junior

No 362, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: We show how to include in the CAPM moments of any order, extending the mean-variance or mean-variance-skewness versions available until now. Then, we present a simple way to modify the formulae, in order to avoid the appearance of utility parameters. The results can be easily applied to practical portfolio design, with econometric inference and testing based on generalised method of moments procedures. An empirical application to the Brazilian stock market is discussed.

Date: 1999-11-01
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