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Title: w_MPS Risk Aversion and the Shadow CAPM: Theory and Empirical Evidence
Authors: Huang, L.
Ma, C.
Nakata, Hiroyuki
First Published: 25-Sep-2015
Publisher: Taylor & Francis (Routledge)
Citation: European Journal of Finance 2015
Abstract: This paper presents the shadow Capital Asset Pricing Model (CAPM) of Ma (2011a) as an intertemporal equilibrium asset pricing model, and tests it empirically. In contrast to the classical CAPM - a single factor model based on a strong behavioral or distributional assumption, the shadow CAPM can be represented as a two factor model, and only requires a modest behavioral assumption of weak form mean-preserving spread (w-MPS) risk aversion. The empirical tests provide support in favor of the shadow CAPM over the classical CAPM, the Consumption CAPM, or the Epstein and Zin (1991) model. Moreover, the shadow CAPM provides a consistent explanation for the cross-sectional variations of expected returns on the stocks and for the time-varying equity premium.
DOI Link: 10.1080/1351847X.2015.1082495
ISSN: 1351-847X
eISSN: 1466-4364
Embargo on file until: 25-Mar-2017
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Archived with reference to SHERPA/RoMEO and publisher website. This is an Accepted Manuscript of an article published by Taylor & Francis in European Journal of Finance on 25 Sep 2015-09-25, available online:
Appears in Collections:Published Articles, School of Management

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