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Portfolio Selection and Asset Pricing---Three-Parameter Framework

Author

Listed:
  • Yusif Simaan

    (Graduate School of Business Administration, Fordham University, 113 West 60th Street, New York, New York 10023)

Abstract

Idiosyncratic security risks are modelled as following a joint spherical distribution characterized by a mean vector and a generalized covariance matrix. Skewness is generated by a single factor for the whole economy, but upon which different securities have different loadings. This results in three-fund separation---two funds to span the spherical risk and one more fund to span the additional skewness risk. A three-parameter normative portfolio analysis that allows short sales restrictions is developed. In addition, a three-parameter capital asset pricing model is provided.

Suggested Citation

  • Yusif Simaan, 1993. "Portfolio Selection and Asset Pricing---Three-Parameter Framework," Management Science, INFORMS, vol. 39(5), pages 568-577, May.
    • Handle: RePEc:inm:ormnsc:v:39:y:1993:i:5:p:568-577
    DOI: 10.1287/mnsc.39.5.568
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