Capital Asset Pricing Model with Size Factor and Normalizing by Volatility Index
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arXiv
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| Autori principali: | , |
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| Natura: | Preprint |
| Pubblicazione: |
2024
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| _version_ | 1866914522202112000 |
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| author | Atsiwo, Abraham Sarantsev, Andrey |
| author_facet | Atsiwo, Abraham Sarantsev, Andrey |
| contents | The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on average. Dividing stock index returns by the Volatility Index makes them independent and normal. In this article, we combine these ideas to create a new discrete-time model, which includes volatility, relative size, and CAPM. We fit this model using real-world data, prove the long-term stability, and connect this research to Stochastic Portfolio Theory. We fill important gaps in our previous article on CAPM with the size factor. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2411_19444 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Capital Asset Pricing Model with Size Factor and Normalizing by Volatility Index Atsiwo, Abraham Sarantsev, Andrey Mathematical Finance Probability Statistical Finance 60G50, 62J05, 62M10, 62P05, 91G15 The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on average. Dividing stock index returns by the Volatility Index makes them independent and normal. In this article, we combine these ideas to create a new discrete-time model, which includes volatility, relative size, and CAPM. We fit this model using real-world data, prove the long-term stability, and connect this research to Stochastic Portfolio Theory. We fill important gaps in our previous article on CAPM with the size factor. |
| title | Capital Asset Pricing Model with Size Factor and Normalizing by Volatility Index |
| topic | Mathematical Finance Probability Statistical Finance 60G50, 62J05, 62M10, 62P05, 91G15 |
| url | https://arxiv.org/abs/2411.19444 |