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Distribution Moments and Equilibrium: A Comment

Published online by Cambridge University Press:  19 October 2009

Fred D. Arditti  and
Haim Levy
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Extract

Using the mean-variance model, Sharpe [5] and Lintner [4] have derived an equilibrium model for price determination under uncertainty. Jean [2] has tried to generalize this model so that other moments of the distribution will be taken into account. The purpose of this note is to show that unlike the Sharpe-Lintner model, Jean's results make no economic sense.

Type
Communications
Information
Journal of Financial and Quantitative Analysis , Volume 7 , Issue 1 , January 1972 , pp. 1429 - 1433
Copyright
Copyright © School of Business Administration, University of Washington 1972

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References

[1]Arditti, F. D. “Risk and the Required Rate of Return.” Journal of Finance, March 1967.CrossRefGoogle Scholar
[2]Jean, W. H. “The Extension of Portfolio Analysis to Three or More Parameters.” Journal of Financial and Quantitative Analysis, January 1971.Google Scholar
[3]Levy, H. “A Utility Function Depending on the First Three Moments.” Journal of Finance, September 1969.CrossRefGoogle Scholar
[4]Lintner, J. “Security Price, Risk and Maximal Gains from Diversification.” Journal of Finance, December 1965.CrossRefGoogle Scholar
[5]Sharpe, W. F. “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk.” Journal of Finance, September 1964.Google Scholar
[6]Sprenkle, C. M. “Warrant Prices as Indicators of Expectations and Preferences.” in The Random Character of Stock Market Prices, ed., Cootner, Paul, M.I.T. Press, 1964.Google Scholar
[7]Tobin, J. “Liquidity Preference as Behavior Towards Risk.” Review of Economic Studies, February 1958.CrossRefGoogle Scholar