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International Journal of Management, IT and Engineering
Year : 2018, Volume : 8, Issue : 12
First page : ( 121) Last page : ( 147)
Online ISSN : 2249-0558.

The Conditional Relation between Higher-Order Systematic Co-moments and Returns in Indian Equity Market

Chaudhary CA Rashmi*, Dr. Mishra Preeti**, Dr. Srivastava Sankalp***

*Research Scholar, Department of Management, BBD University, Lucknow, U.P, India

**Associate Professor, Department of Management, BBDNITM, Lucknow

***Associate Professor, Department of International Business, ITM, Navi Mumbai

Online published on 18 October, 2019.

Abstract

Two of the important conditions for the traditional CAPM to hold is that the expected market risk premium must be positive and that the security returns must follow the normal distribution. However, the validity of the traditional CAPM model is tested on realized returns rather than on expected return and the realized returns may be positive or negative. Further, many times the security returns do not the follow normal distribution. The current study aims at developing the model which incorporates higher moments (co-skewness and co-kurtosis) and also incorporates both rising and declining market in the same model. The model is tested for the Indian equity market. The results of the study describing the conditional relationship between co-moments and return show that only beta and co-skewness are priced in the Indian market and not the co-kurtosis. The results further indicate the asymmetric relationship between betas and return in up and down markets and symmetric relationship between co-skewness and return in up and down markets.

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Keywords

Capital Asset Pricing Model, Conditional Relationship, Higher-Order Moments, Emerging Market, Indian Stock Market.

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