The game-theoretic capital asset pricing model

Using Shafer and Vovk's game-theoretic framework for probability, we derive a capital asset pricing model from an efficient market hypothesis, with no assumptions about the beliefs or preferences of investors. The efficient market hypothesis says that a speculator with limited means cannot beat a particular index by a substantial factor. The model that follows says that the excess of a portfolio's average return over the index's average return should approximate the excess of the portfolio's covariance with the index over the index's variance. This leads to interesting new ways to evaluate the past performance of portfolios and mutual funds.

• Type: Journal
• Year: 2008
• Where: IJAR
• Authors: Vladimir Vovk, Glenn Shafer
• Keywords: Average Return, Efficient Market Hypothesis, Global Financial Data, IJAR 2008