Asymmetry-Risk and Stochastic Dominance Asset Pricing
Microeconomics: Decision-Making under Risk & Uncertainty eJournal(2020)
摘要
Based on a novel measure of volatility-asymmetries in asset returns, we provide economic insight into the asymmetry-risk as a critical factor for investment decision making. Our approach offers a distribution-free solution to determine the portfolio efficient-frontier under stochastic dominance. It yields a utility-free portfolio separation for investors who are not only averse to symmetric risk and but also possess a diminishing risk-tolerance for asymmetric payoffs of gain/loss. In equilibrium, thus, investors require additional compensation for bearing the systematic risk associated with market volatility-asymmetries. Our model extends CAPM and rationalizes both the equity-premium and beta-anomaly puzzle.
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关键词
stochastic dominance optimization,asymmetry,capital
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