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Stable Models in Testable Asset Pricing

In: Approximation, Probability, and Related Fields

Author

Listed:
  • Bertrand Gamrowski

    (École Polytechnique)

  • Svetlozar T. Rachev

    (University of California)

Abstract

The goal of this paper is to provide tests of Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) in the case where asset prices follow symmetric Pareto-stable distributions. For the CAPM, we give a computable form of the “beta”, that can be deduced from Fama’s and Ross’ works in this field, or from a direct proof. For the APT, we study an asymptotic stable version and we provide an original testing procedure. In both cases, our work is possible after we have established mathematical properties concerning the structure of spaces of symmetric Pareto-stable random variables.

Suggested Citation

  • Bertrand Gamrowski & Svetlozar T. Rachev, 1994. "Stable Models in Testable Asset Pricing," Springer Books, in: George Anastassiou & Svetlozar T. Rachev (ed.), Approximation, Probability, and Related Fields, pages 223-235, Springer.
    • Handle: RePEc:spr:sprchp:978-1-4615-2494-6_17
    DOI: 10.1007/978-1-4615-2494-6_17
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