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E-V and E-S Capital Asset Pricing Models: Some Empirical Tests

Published online by Cambridge University Press:  19 October 2009

Ali Jahankhani
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Extract

The purpose of this study was to test empirically the risk and return relationships for a mean-variance (E-V) and a mean-semivariance (E-S) capital asset pricing model (CAPM). To date, virtually all empirical work has focused on the Sharpe-Lintner [28,17] E-V model. In the E-V model, the risk of an efficient portfolio is measured by the standard deviation of return, σp. For individual securities, the appropriate measure of risk is the covariance of return on the security and the market portfolio. The E-V model states that the expected return of any security or portfolio equals the risk-free rate of return plus a risk premium that is η times the difference between the expected return on the market portfolio and the risk-free rate of return, i.e.,

where the tildes denote random variables, and

= expected rate of return on security i,

Rf = risk-free rate of return,

= expected rate of return on the market portfolio, and

.

Type
I. Trefftzs Award
Information
Journal of Financial and Quantitative Analysis , Volume 11 , Issue 4 , November 1976 , pp. 513 - 528
Copyright
Copyright © School of Business Administration, University of Washington 1976

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