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Volatility Asset Pricing Model as an Alternative Approach?

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  • Robert G. Kuklik
  • Vladislav Vacek

Abstract

The reality of contemporary developments in the capital markets indicates that they do not lend themselves to the deductive theory based on simplified rationality of the physical world. The behaviour of the markets cannot be derived from rather bare postulates of the so called "random walk" process and the "normal distribution" of investments' returns. It in fact relates to a variety of different. even behavioural factors. The riskreturn relationship is not therefore stable over time and investors cannot rely on the comforting message that all you need to do in order to obtain an expected return is only to decide the appropriate level of risk. There are therefore serious doubts about the Efficient Market Hypothesis with e.g. the CAPM. SIM and MIM frameworks. The multifractal view of e.g. Mandelbrot concerning the market behaviour. has inspired the outline of the Volatility Asset Pricing Model (VAPM) based on the market's expected volatility and the serial dependence on the past return's performance. both reflecting the total market risk of an investment. In view of a further research this model has been so far successfully tested as well as presented.

Suggested Citation

  • Robert G. Kuklik & Vladislav Vacek, 2013. "Volatility Asset Pricing Model as an Alternative Approach?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2013(1), pages 39-66.
    • Handle: RePEc:prg:jnlefa:v:2013:y:2013:i:1:id:95
    DOI: 10.18267/j.efaj.95
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    References listed on IDEAS

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    1. Ayinuola, Tunde Folorunso & Otonne, Adewumi, 2025. "The Impact of Financial Indicators and Stock Market Volatility on Stock Returns in Nigeria: Evidence from Panel Analysis," African Journal of Economic Review, African Journal of Economic Review, vol. 13(2).

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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