CAPM: The Consistent Opportunities In Tail Hedged Equities

“The introduction of asymmetric beta to the CAPM framework can allow an investor to construct a portfolio with expectations well above the security market line. Incorporating asymmetric beta provides evidence of a mispricing in certain payoff profiles, namely tail hedged equities, that can be analyzed by using variants of the CAPM type of framework. CAPM based asset allocations are misspecified and ill-equipped to handle asymmetric returns” — Capital Asset Pricing Mistakes: The Consistent Opportunities in Tail Hedged Equities

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Capital asset pricing (CAPM) type of frameworks are faulty because they ignore a whole class of securities that have highly non-linear payoffs — e.g. options.

This is the view as put forward by a working white paper from Universa...