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On pricing kernels, information and risk

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  • D. L. Wilcox
  • T. J. Gebbie

Abstract

We discuss the finding that cross-sectional characteristic based models have yielded portfolios with higher excess monthly returns but lower risk than their arbitrage pricing theory counterparts in an analysis of equity returns of stocks listed on the JSE. Under the assumption of general no-arbitrage conditions, we argue that evidence in favour of characteristic based pricing implies that information is more likely assimilated by means of nonlinear pricing kernels for the markets considered.

Suggested Citation

  • D. L. Wilcox & T. J. Gebbie, 2013. "On pricing kernels, information and risk," Papers 1310.4067, arXiv.org, revised Oct 2013.
    • Handle: RePEc:arx:papers:1310.4067
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    References listed on IDEAS

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