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Equilibrium Alpha in Asset Pricing in an Ambiguity-averse Economy

Katsutoshi Wakai

Discussion papers from Graduate School of Economics , Kyoto University

Abstract: We derive an equilibrium asset pricing relation analogous to the cap-ital asset pricing model (CAPM) for investors whose preferences follow the robust mean-variance preferences introduced by Maccheroni, Mari-nacci, and Ru¢ no (2013). Our model de?nes a precise relation between the value of alpha from the market regression and ambiguity: alpha is positive if the asset has greater exposure to market ambiguity than market risk, and vice versa.

Keywords: Ambiguity aversion; asset pricing; capital asset pricing model (CAPM); robust mean-variance preferences (search for similar items in EconPapers)
JEL-codes: D81 G11 G12 (search for similar items in EconPapers)
Pages: 14
Date: 2015-11
New Economics Papers: this item is included in nep-fmk and nep-upt
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