Derivation of the Capital Asset Pricing Model without Normality or Quadratic Preference: A Note

Authors

  • YOUNG K. KWON


  • College of Commerce, University of Illinois at Urbana-Champaign.

ABSTRACT

Derivation of the capital asset pricing model requires various assumptions including normality or quadratic preference. The objective of this note is to show that the normality or quadratic preference assumption can be replaced by the fair game condition that assets' residual returns have zero mean conditional upon the return of the market portfolio.

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