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Asset Pricing Models When the Number of Securities Held is Constrained: A Comparison and Reconciliation of the Mao and Levy Models

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  • Kryzanowski, Lawrence
  • Chau, To Minh

Abstract

In a paper published in 1978, Levy [5] proposed a general capital asset pricing model (GCAPM), which he obtained by maximizing investors' utility when the number of securities held in each investor's portfolio is constrained. Although Levy's resultant asset pricing model is somewhat different in appearance than the asset pricing model proposed by Mao [8] in 1971, it can be shown that both models are not only quite comparable in content but that both result in some very promising theoretical and empirical implications. Thus, the purpose of this paper is twofold. First, these two important contributions to the literature on asset pricing in imperfect markets will be compared and contrasted. Second, it will be shown that both models can yield a “clinical” form of the traditional CAPM, which appears to be more desirable for empirical testing purposes.

Suggested Citation

  • Kryzanowski, Lawrence & Chau, To Minh, 1982. "Asset Pricing Models When the Number of Securities Held is Constrained: A Comparison and Reconciliation of the Mao and Levy Models," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(1), pages 63-73, March.
    • Handle: RePEc:cup:jfinqa:v:17:y:1982:i:01:p:63-73_01
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    Cited by:

    1. Chung, Richard & Kryzanowski, Lawrence, 2001. "Tests of investor cognizance using earnings forecasts of North American analysts," International Review of Economics & Finance, Elsevier, vol. 10(2), pages 187-204.
    2. Bouslah, Kais & Kryzanowski, Lawrence & M’Zali, Bouchra, 2013. "The impact of the dimensions of social performance on firm risk," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1258-1273.
    3. Kais Bouslah & Lawrence Kryzanowski & Bouchra M’Zali, 2018. "Social Performance and Firm Risk: Impact of the Financial Crisis," Journal of Business Ethics, Springer, vol. 149(3), pages 643-669, May.
    4. Aboulamer, Anas & Kryzanowski, Lawrence, 2016. "Are idiosyncratic volatility and MAX priced in the Canadian market?," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 20-36.
    5. Mohammadreza Tavakoli Baghdadabad & Girijasankar Mallik, 2018. "Global idiosyncratic risk moments," Empirical Economics, Springer, vol. 55(2), pages 731-764, September.

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