Positive prices in CAPM

Article Abstract:

Some equilibrium prices in CAPM may be negative because of nonmonotonicity of preferences. We identify several sets of sufficient conditions for prices to be positive. The central conditions impose bounds on the investors' risk aversion. These bounds do not need to hold globally but only in a relevant range of portfolios or combinations of mean and standard deviation. The relevant range is specified on the basis of exogenous parameters and variables, and it must contain any endogenously determined equilibrium. The bounds on risk aversion ensure that the preferences for assets are sufficiently well-behaved within the relevant range. (Reprinted by permission of the publisher.)

Research, Models, Capital market, Capital markets, Capital

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Tests of the CAPM with time-varying covariances: a multivariate GARCH approach

Article Abstract:

This paper examines an asset pricing model in which the Sharpe-Lintner CAPM and the zero-beta CAPM are special cases. The model allows the ratio of expected market risk premium to market variance, the conditional expected excess returns, and the risks to change over time. The results are found to be sensitive to the choice of the portfolio formation techniques. Significant time variability is shown in the conditional expected excess asset returns and risks and also in the reward-to-risk ratio. (Reprinted by permission of the publisher.)

Usage, Prices and rates, Capital assets, Autoregression (Statistics), Analysis of covariance, Covariance analysis

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