Market price of risk estimation: Does distribution matter?

The econometric framework of the contemporaneous asset pricing model used by Theodossiou and Savva and Savva and Theodossiou to investigate the relationship between risk and expected returns in financial markets is generalized to a class of two-sided, asymmetry separable distributions. The latter class of distributions includes as special cases the skewed forms for the normal, Student's t, Laplace, generalized error, generalized t, logistic and generalized type III logistic. All distributions document a positive and statistically significant relationship between risk and expected returns. A comparison of their data fitting ability shows that the generalized t distribution provides the best overall results.