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Corresponding Author:
Abdulnasser Hatemi-J, Department of Economics and Finance, College of Business and Economics, UAE University, Al Ain, The United Arab Emirates

An Asymmetric Capital Asset Pricing Model

January 30, 2025
JEL classification: C12; C22; G12
Keywords: Market Risk; Company Risk; Long Position; Short Position; Apple; Nasdaq

Abstract

Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing model for measurement of the market risk. It explicitly accounts for the fact that falling prices determine the risk for a long position in the risky asset and the rising prices govern the risk for a short position. Thus, a position dependent market risk measure that is provided accords better with reality. The empirical application reveals that Apple stock is more volatile than the market only for the short seller. Surprisingly, the investor that has a long position in this stock is facing a lower volatility than the market. This property is not captured by the standard asset pricing model, which has important implications for the expected returns and hedging designs.

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Institute for International Economics of the Genoa Chamber of Commerce

Institute for International Economics
of the Genoa Chamber of Commerce