A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction

We estimate the CAPM model on European stock market data, allowing for asymmetric and fat-tailed return distributions using independent and identically asymmetric power distributed (IIAPD) innovations. The results indicate that the generalized CAPM with IIAPD errors has desirable properties. It is s...

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Main Authors: Bao, Te, Diks, Cees, Li, Hao
Other Authors: School of Social Sciences
Format: Article
Language:English
Published: 2019
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Online Access:https://hdl.handle.net/10356/104240
http://hdl.handle.net/10220/48608
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Institution: Nanyang Technological University
Language: English
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spelling sg-ntu-dr.10356-1042402020-03-07T13:00:26Z A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction Bao, Te Diks, Cees Li, Hao School of Social Sciences DRNTU::Social sciences::Economic development CAPM Non-Gaussian Distribution We estimate the CAPM model on European stock market data, allowing for asymmetric and fat-tailed return distributions using independent and identically asymmetric power distributed (IIAPD) innovations. The results indicate that the generalized CAPM with IIAPD errors has desirable properties. It is substantially less likely to be rejected than the traditional CAPM with normally distributed errors and, moreover, backtests show that portfolios constructed using IIAPD errors outperform the portfolio constructed with normally distributed errors in terms of commonly-used performance measures. MOE (Min. of Education, S’pore) Accepted version 2019-06-07T08:34:37Z 2019-12-06T21:28:52Z 2019-06-07T08:34:37Z 2019-12-06T21:28:52Z 2017 Journal Article Bao, T., Diks, C., & Li, H. (2018). A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction. Economic Modelling, 68, 611-621. doi:10.1016/j.econmod.2017.03.035 0264-9993 https://hdl.handle.net/10356/104240 http://hdl.handle.net/10220/48608 10.1016/j.econmod.2017.03.035 en Economic Modelling © 2017 Elsevier B.V. All rights reserved. This paper was published in Economic Modelling and is made available with permission of Elsevier B.V. 44 p. application/pdf
institution Nanyang Technological University
building NTU Library
country Singapore
collection DR-NTU
language English
topic DRNTU::Social sciences::Economic development
CAPM
Non-Gaussian Distribution
spellingShingle DRNTU::Social sciences::Economic development
CAPM
Non-Gaussian Distribution
Bao, Te
Diks, Cees
Li, Hao
A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction
description We estimate the CAPM model on European stock market data, allowing for asymmetric and fat-tailed return distributions using independent and identically asymmetric power distributed (IIAPD) innovations. The results indicate that the generalized CAPM with IIAPD errors has desirable properties. It is substantially less likely to be rejected than the traditional CAPM with normally distributed errors and, moreover, backtests show that portfolios constructed using IIAPD errors outperform the portfolio constructed with normally distributed errors in terms of commonly-used performance measures.
author2 School of Social Sciences
author_facet School of Social Sciences
Bao, Te
Diks, Cees
Li, Hao
format Article
author Bao, Te
Diks, Cees
Li, Hao
author_sort Bao, Te
title A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction
title_short A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction
title_full A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction
title_fullStr A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction
title_full_unstemmed A generalized CAPM model with asymmetric power distributed errors with an application to portfolio construction
title_sort generalized capm model with asymmetric power distributed errors with an application to portfolio construction
publishDate 2019
url https://hdl.handle.net/10356/104240
http://hdl.handle.net/10220/48608
_version_ 1681038708128612352