Portfolio Selection and Asset Pricing—Three-Parameter Framework

Idiosyncratic security risks are modelled as following a joint spherical distribution characterized by a mean vector and a generalized covariance matrix. Skewness is generated by a single factor for the whole economy, but upon which different securities have different loadings. This results in three-fund separation—two funds to span the spherical risk and one more fund to span the additional skewness risk. A three-parameter normative portfolio analysis that allows short sales restrictions is developed. In addition, a three-parameter capital asset pricing model is provided.

• 저널Management Science · 39(5) · 568–577
• 토픽Financial Markets and Investment Strategies · Finance
• DOI10.1287/mnsc.39.5.568
• 저자Yusif Simaan