Unconditional pricing models fail to support a positive risk–return trade-off. When excess market return is negative an inverse relationship between the capital asset pricing model (CAPM) beta and equal-weighted and value-weighted portfolio return is observed. To accommodate market...

This paper provides a review of the main features of asset pricing models. The review includes single-factor and multifactor models, extended forms of the Capital Asset Pricing Model with higher order co- moments, and asset pricing models conditional on time-varying volatility.

α (“Alpha”) has symbolic importance on the investments side of finance. That is, a fundamental pillar of modern finance theory is the risk-return relation, and traditionally alpha is taken to represent the degree of “mispricing” in asset returns. But, such an interpretation is not...

This paper investigates whether the risk-return relation varies, depending on changing market volatility and up/down market conditions. Three market regimes based on the level of conditional volatility of market returns are specified — "low", "neutral" and "high". The market model is extended...