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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31464
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| Title: | Capital Asset Pricing Under Ambiguity |
| Authors: | Izhakian, Yehuda |
| Keywords: | Shadow Theory
Ambiguity
Ambiguity Measure
Uncertainty Measure
Ambiguity premium
mean-variance
mean-uncertainty
Capital Market Line (CML)
Capital Asset Pricing Model (CAPM) |
| Issue Date: | 17-Feb-2012 |
| Abstract: | This paper generalizes the mean–variance preferences to
mean–variance–ambiguity preferences by relaxing the standard
assumption that probabilities are known and assuming that probabilities
are themselves random. It introduces a new measure of uncertainty, one
that consolidates risk and ambiguity, which is employed for extending
the CAPM from risk to uncertainty by incorporating ambiguity. This model
makes the distinction between systematic ambiguity and idiosyncratic
ambiguity and proves that the ambiguity premium is proportional to the
systematic ambiguity. The merit of this model is twofold: first, it can
be tested empirically; second, it can serve for measuring the
performance of portfolios relative to their uncertainty. |
| URI: | http://hdl.handle.net/2451/31464 |
| Appears in Collections: | Economics Working Papers
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