Empirical Evidence on the Validity of the Conditional Higher Moment Capm in the Bombay Stock Exchange

Akash Asthana

Department of Statistics, University of Lucknow, Lucknow, India.

Syed Shafi Ahmed *

Department of Statistics, University of Lucknow, Lucknow, India.

Anjana Tiwari

Department of Statistics, University of Lucknow, Lucknow, India.

*Author to whom correspondence should be addressed.


Various researchers criticized the assumption of a normal distribution of returns in the traditional Capital Asset Pricing Model (CAPM), leading to the recognition of the non-normal distribution of returns and the mean and variance were insufficient to characterize the distribution of returns completely which led the researchers to look for higher order moments. The present study investigated empirical validity of the conditional higher order moment Capital Asset Pricing Model (CAPM) in the context of the Indian stock market, specifically the Bombay Stock Exchange utilizing the data from sectoral indices for the period from April 2011 to March 2021. To test the four moment CAPM empirically, the specification derived from Bollerslev et al. (1988) has been used in the study. The study's findings reveals that the higher moment i.e. conditional coskewness and cokurtosis hold significant pricing implications and do have an impact on returns in the Indian stock market. The explanatory power of the model showed an increase as compared to the unconditional CAPM as the R-square value obtained was greater than the latter model. The results of the study were found to be mixed and inconclusive. Hence, the conditional higher moment CAPM cannot be validated in the Indian context.

Keywords: Covariance, coskewness, cokurtosis, Indian stock market, bombay Stock Exchange (BSE)

How to Cite

Asthana , A., Ahmed, S. S., & Tiwari, A. (2024). Empirical Evidence on the Validity of the Conditional Higher Moment Capm in the Bombay Stock Exchange. Journal of Economics, Management and Trade, 30(4), 37–45. https://doi.org/10.9734/jemt/2024/v30i41203


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