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Fractional-moment Capital Asset Pricing model

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  • Li, Hui
  • Wu, Min
  • Wang, Xiao-Tian

Abstract

In this paper, we introduce the definition of the “α-covariance” and present the fractional-moment versions of Capital Asset Pricing Model,which can be used to price assets when asset return distributions are likely to be stable Levy (or Student-t) distribution during panics and stampedes in worldwide security markets in 2008. Furthermore, if asset returns are truly governed by the infinite-variance stable Levy distributions, life is fundamentally riskier than in a purely Gaussian world. Sudden price movements like the worldwide security market crash in 2008 turn into real-world possibilities.

Suggested Citation

  • Li, Hui & Wu, Min & Wang, Xiao-Tian, 2009. "Fractional-moment Capital Asset Pricing model," Chaos, Solitons & Fractals, Elsevier, vol. 42(1), pages 412-421.
    • Handle: RePEc:eee:chsofr:v:42:y:2009:i:1:p:412-421
    DOI: 10.1016/j.chaos.2009.01.003
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