Theoretical Analysis of Robust CAPMs under a Quadratic Security Market Model

Theoretical Analysis of Robust CAPMs under a Quadratic Security Market Model | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Theoretical Analysis of Robust CAPMs under a Quadratic Security Market Model Koji Kusuda, Kentaro Kikuchi This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-4936777/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This study assumes homothetic robust Epstein-Zin utility and analyzes the consumption--investment problem and CAPMs under a quadratic security market model in which interest rates, the market price of risk, the variances and covariances of asset returns, and inflation rates are stochastic. First, we demonstrate that homothetic robust Epstein-Zin utility is interpreted as homothetic stochastic differential utility. Then, we derive a robust version of the two-factor CAPM and show that the CAPM can contribute to solving both the equity premium puzzle and the risk-free rate puzzle. Economic Theory Finance Financial Mathematics Homothetic robust utility Stochastic differential utility Consumption-investment problem CAPM Stochastic volatility Stochastic inflation Full Text Additional Declarations The authors declare no competing interests. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. 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