CAPM (Capital Asset Pricing Model) with Stable Distribution

  • Dedi Rosadi Jurusan Matematika FMIPA Universitas Gajah Mada

Abstract

In the classical finance theory, the CAPM models are developed using the Gaussian framework, that is, weassume the vector of returns can be modeled using the multivariate normal distribution. However, it is foundempirically that typically the financial data, especially the returns of assets, are leptokurtic (i.e., it is heavy tail andpeaked around the center). It has been shown in the literature that the stable distribution, where the normal is of aspecial case, becoming one of the popular model to model leptokurtic data. In this paper, we analyse the CAPMunder the assumption that the data follows the stable non-normal distribution with the index ofstability1 <α < 2 . We finally provide empirical application of the CAPM under the Gaussian and stable casesusing several returns data from Indonesian Stock Market.

Published
2010-07-01
How to Cite
ROSADI, Dedi. CAPM (Capital Asset Pricing Model) with Stable Distribution. Jurnal ILMU DASAR, [S.l.], v. 11, n. 2, p. 187-196, july 2010. ISSN 2442-5613. Available at: <https://jurnal.unej.ac.id/index.php/JID/article/view/98>. Date accessed: 29 mar. 2024.
Section
General

Keywords

CAPM; stable distribution; leptokurtic