ABSTRACTIn this paper, the authors employ a nonlinear formulation to examine empirically the structural content of the three moment capital asset pricing model (CAPM). Whereas previous research focused on the coefficients of beta and co‐skewness, this paper presents empirical results on the market risk premium and elasticity coefficient components of these two coefficients. The results indicate that although the estimated coefficient of coskewness gives important information on the marginal rate of substitution between skewness and expected return, the elasticity coefficient can provide additional (albeit different) information on skewness preference that is independent of the effects of the market risk premium. This research also shows how the non‐linear formulation provides a direct linkage between the twomoment and three‐moment CAPM versions and thus provides an empirical test of the theoretical conditions under which skewness preference is consistent with the two‐moment CAPM empiricial