High-order moments in stock pricing : evidence from the Chinese and US markets
Purpose: The purpose of this paper is to introduce an augmented high-order capital asset pricing model (AH-CAPM) as a new risk-based model to price stocks. Design/methodology/approach: The AH-CAPM is defined as a linear model with high-order marginal moments and co-moments from the joint distributions of the sorted stock portfolio returns and the market return. Findings: The performance of the AH-CAPM is tested in the Chinese and US stock markets. Empirical results show that the high-order marginal moments and co-moments from the joint distributions in AH-CAPM contain the risk and return information implied by the Fama–French factors, indicating it as a better risk measurement. Moreover, the AH-CAPM performs better than the Fama–French three-factor model and the Carhart four-factor model in both the Chinese and US stock markets. Originality/value: Overall, this study introduces a new asset pricing model with better measurements to incorporate risk information in the stock market.
Year of publication: |
2019
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Authors: | Chen, Yifan ; Chen, Zilin ; Tang, Huoqing |
Published in: |
China Finance Review International. - Emerald, ISSN 2044-1398, ZDB-ID 2589380-4. - Vol. 10.2019, 3 (21.11.), p. 323-346
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Publisher: |
Emerald |
Saved in:
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