CFA Institute Pubs

An Examination of Alternative CAPM-Based Models in UK Stock Returns


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Although it is the centerpiece of modern finance, the capital asset pricing model (CAPM) poorly explains cross-sectional U.S. and U.K. stock returns. By extending the standard CAPM beyond its traditional mean–variance framework to include skewness and kurtosis, U.K. stock return predictability can be improved, though this result could be specious, owing to excessive use of model parameters.
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