Homogeneity Hypothesis in the Context of Asset Pricing Models: The Quadratic Market Model

14 Pages Posted: 14 Mar 2001

See all articles by Giovanni Barone-Adesi

Giovanni Barone-Adesi

University of Lugano; Swiss Finance Institute

Patrick Gagliardini

USI Università della Svizzera italiana; Swiss Finance Institute

Giovanni Urga

Cass Business School, Faculty of Finance, London, UK and Bergamo University, Italy

Date Written: October 29, 2000

Abstract

This paper proposes a two factor model for asset pricing. We formulate a model of asset returns that in addition to the traditional market return term includes also the square of the market return to account for risk originating from coskewness with the market portofolio. The quadratic term is able to account for heterogeneities across portfolios. We conclude that the extra term is significant and that the homogeneity hypothesis is accepted only in the presence of this term.

Keywords: Asset pricing models, panel

JEL Classification: G12, C23

Suggested Citation

Barone-Adesi, Giovanni and Gagliardini, Patrick and Urga, Giovanni, Homogeneity Hypothesis in the Context of Asset Pricing Models: The Quadratic Market Model (October 29, 2000). Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=263215 or http://dx.doi.org/10.2139/ssrn.263215

Giovanni Barone-Adesi

University of Lugano ( email )

Via Buffi 13
CH-6904 Lugano
Switzerland
+41 58 666 4671 (Phone)
+41 58 666 46 47 (Fax)

Swiss Finance Institute

c/o University of Geneva
40 Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Patrick Gagliardini

USI Università della Svizzera italiana ( email )

Via Buffi 13
Lugano, TN 6900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Giovanni Urga (Contact Author)

Cass Business School, Faculty of Finance, London, UK and Bergamo University, Italy ( email )

108 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 8698 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/g.urga

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