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.

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 to...