Homogeneity Hypothesis in the Context of Asset Pricing Models: The Quadratic Market Model

Topics:
Investment and Capital Markets
Tags:
Asset,
Asset Management,
Asset Pricing,
Business Operations,
Operational Planning,
Universite Laval
Source:
Universite Laval

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Overview: This paper proposes a two factor model for asset pricing. The paper formulates a model of asset returns that in addition to the traditional market return term includes also the square of the market return to account for risk originating from co-skewness with the market portfolio. The quadratic term is able to account for heterogeneities across portfolios. It concludes that the extra term is significant and that the homogeneity hypothesis is accepted only in the presence of this term.

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Format: PDF | Size: 103KB | Date: Oct 2000 | Pages: 14

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