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On the Class of Elliptical Distributions and their Applications to the Theory of Portfolio Choice

Joel Owen and Ramon Rabinovitch
The Journal of Finance
Vol. 38, No. 3 (Jun., 1983), pp. 745-752
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328079
Stable URL: http://www.jstor.org/stable/2328079
Page Count: 8
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On the Class of Elliptical Distributions and their Applications to the Theory of Portfolio Choice
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Abstract

It is shown that the class of elliptical distributions extend the Tobin [14] separation theorem, Bawa's [2] rules of ordering uncertain prospects, Ross's [12] mutual fund separation theorems, and the results of the CAPM to non-normal distributions, which are not necessarily stable. Further, the mean-covariance matrix framework is generalized to a mean-characteristic matrix framework in which the characteristic matrix is the basis for a spread or risk measure, and a generalized equilibrium pricing equation is arrived at. The implications to empirical testing of the CAPM and modeling the empirical distribution of speculative prices are discussed.

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