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Препринт

Colog Asset Pricing, Evidence from Emerging Markets

Dranev Y., Fomkina S.
We introduce a new asset pricing model to account for risk asymmetrically in a very natural way. Assuming asymmetric investor behavior we develop a utility function similar to a quadratic utility but include a colog measure for capturing risk attitude. Asymmetry in investor preferences follows the asymmetric relationships between asset and market returns in equilibrium. Moreover the local version of the model depends on the characteristics of domestic markets, which is reflected in the different relationship between asset and market returns. We test the model in the Russian and South African markets and show that market premium in the Russian market is higher than in the South African market.