Π-CAPM: the classical CAPM with probability weighting and skewed assets
We propose a new asset pricing model that generalizes the mean-variance framework by including probability weighting, specifically the overweighting of rare, high-impact events. Our model — the Pi-CAPM — generates several new predictions: (i) skewness has a positive price effect, amplified by volati...
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| Hauptverfasser: | , , |
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| Dokumenttyp: | Article (Journal) |
| Sprache: | Englisch |
| Veröffentlicht: |
December 2025
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| In: |
The review of financial studies
Year: 2025, Jahrgang: 38, Heft: 12, Pages: 3497-3541 |
| ISSN: | 1465-7368 |
| DOI: | 10.1093/rfs/hhaf045 |
| Online-Zugang: | Verlag, kostenfrei, Volltext: https://doi.org/10.1093/rfs/hhaf045
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| Verfasserangaben: | Joost Driessen, Sebastian Ebert, Joren Koëter |
| Zusammenfassung: | We propose a new asset pricing model that generalizes the mean-variance framework by including probability weighting, specifically the overweighting of rare, high-impact events. Our model — the Pi-CAPM — generates several new predictions: (i) skewness has a positive price effect, amplified by volatility; (ii) the price effect of volatility is negative for left-skewed assets but positive for right-skewed assets; and (iii) option-implied variance premiums for stocks have a U-shaped relation to skewness, amplified by volatility. We find strong empirical support for these predictions. Finally, we show that the Pi-CAPM predicts an exaggerated co-movement of assets and can explain the correlation premium. |
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| Beschreibung: | Online veröffentlicht am 14.07.2025 Gesehen am 13.01.2026 |
| Beschreibung: | Online Resource |
| ISSN: | 1465-7368 |
| DOI: | 10.1093/rfs/hhaf045 |