The Explanatory Power of Higher Systematic Moment in Conditional Capital Asset Pricing Model

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DAVALLOU MARYAM; Rezaei Wajed

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Paper Information

Journal: JOURNAL OF FINANCIAL MANAGEMENT PERSPECTIVE Year:2019 | Volume:9 | Issue:3 (27) Page(s): 9-28

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Title

The Explanatory Power of Higher Systematic Moment in Conditional Capital Asset Pricing Model

Author(s)

DAVALLOU MARYAM | Rezaei Wajed | Issue Writer Certificate

Keywords

Capital asset pricingQ1

betaQ2

systematic skewnessQ1

systematic kurtosisQ1

Abstract

The Capital asset pricing model is based on the assumption of the normal distribution of asset returns. However, many studies have challenged the assumption of the normal distribution of returns and subsequently, by adding higher momentto model development. Also, in examining the effect of higher moments real returns instead of expected returns is used, also because the Capital asset pricingmodel assumes investors' preferences and the asset return distribution is stablethe conditional relationship between returns and these moments is examination. Therefore, the purpose of this study is to examine the empirical effects of the third and fourth systematic moments on the minimum rate of expected return on investment in in a conditional way. The research sample includes 195 companies accepted in Tehran Stock Exchange from 2004 to 2016. In order to study the effect of the third and fourth systematic moments, the Fama Macbeth method (1973) has been used. Evidence suggests that in the whole study period, the effect of skewness was systematically negative, and systematic kurtosishas not been effective on the expected minimum expected return rate. In the bullish market, the systematic skewness has a direct effect of reversal and systematic elongation, and in the downside, both reversed the effect.

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APA: Copy

DAVALLOU, MARYAM, & Rezaei, Wajed. (2019). The Explanatory Power of Higher Systematic Moment in Conditional Capital Asset Pricing Model. JOURNAL OF FINANCIAL MANAGEMENT PERSPECTIVE, 9(3 (27) ), 9-28. SID. https://sid.ir/paper/387200/en

Vancouver: Copy

DAVALLOU MARYAM, Rezaei Wajed. The Explanatory Power of Higher Systematic Moment in Conditional Capital Asset Pricing Model. JOURNAL OF FINANCIAL MANAGEMENT PERSPECTIVE[Internet]. 2019;9(3 (27) ):9-28. Available from: https://sid.ir/paper/387200/en

IEEE: Copy

MARYAM DAVALLOU, and Wajed Rezaei, “The Explanatory Power of Higher Systematic Moment in Conditional Capital Asset Pricing Model,” JOURNAL OF FINANCIAL MANAGEMENT PERSPECTIVE, vol. 9, no. 3 (27) , pp. 9–28, 2019, [Online]. Available: https://sid.ir/paper/387200/en

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