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General Tests of Latent Variable Models and Mean-Variance Spanning

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  • Ferson, Wayne E
  • Foerster, Stephen R
  • Keim, Donald B

Abstract

The methods of Michael R. Gibbons and Wayne Ferson (1985) are extended, relaxing the assumption that expected returns are linear functions of predetermined instruments. A model of conditional mean-variance spanning generalizes G. Huberman and S. Kandel (1987). The empirical results indicate that more than a single risk premium is needed to model expected stock and bond returns, but the number of common factors in the expected returns is small. However, when size-based common stock portfolios proxy for the risk factors, the authors reject the hypothesis that four of them describe the conditional expected returns of the other assets. Copyright 1993 by American Finance Association.

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Bibliographic Info

Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 48 (1993)
Issue (Month): 1 (March)
Pages: 131-56

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Handle: RePEc:bla:jfinan:v:48:y:1993:i:1:p:131-56

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Cited by:
  1. Belousova, Julia & Dorfleitner, Gregor, 2012. "On the diversification benefits of commodities from the perspective of euro investors," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2455-2472.
  2. Jing-zhi Huang & Zhaodong Zhong, 2013. "Time Variation in Diversification Benefits of Commodity, REITs, and TIPS," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 152-192, January.
  3. Mirakhor, Abbas, 2007. "Islamic Finance and Globalization: A Convergence?," MPRA Paper 56026, University Library of Munich, Germany.
  4. Peñaranda, Francisco & Sentana, Enrique, 2004. "Spanning Tests in Return and Stochastic Discount Factor Mean Variance Frontiers: A Unifying Approach," CEPR Discussion Papers 4422, C.E.P.R. Discussion Papers.
  5. B. Carmichael & L. Samson, 2003. "Expected returns and economic risk in Canadian financial markets," Applied Financial Economics, Taylor & Francis Journals, vol. 13(3), pages 177-189.
  6. DeRoon, Frans A. & Nijman, Theo E., 2001. "Testing for mean-variance spanning: a survey," Journal of Empirical Finance, Elsevier, vol. 8(2), pages 111-155, May.
  7. de Roon, F.A. & Nijman, T.E. & Werker, B.J.M., 2000. "Currency Hedging for International Stock Portfolios," ERIM Report Series Research in Management ERS-2000-21-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  8. Lingfeng Li, 2003. "An Economic Measure of Diversification Benefits," Yale School of Management Working Papers ysm371, Yale School of Management, revised 01 Jul 2003.
  9. Campbell R. Harvey, 1994. "Predictable Risk and Returns in Emerging Markets," NBER Working Papers 4621, National Bureau of Economic Research, Inc.
  10. Nijman, T.E. & Roon, F.A. de & Werker, B.J.M., 1996. "Testing for Spanning with Futrures Contracts and Nontraded Assets: A General Approach," Discussion Paper 1996-83, Tilburg University, Center for Economic Research.
  11. Kathleen M. Kahle & Ralph A. Walkling, . "The Impact of Industry Classifications on Financial Research," Research in Financial Economics 9607, Ohio State University.
  12. Mika Vaihekoski, 2000. "Unconditional international asset pricing models: empirical tests," Finnish Economic Papers, Finnish Economic Association, vol. 13(2), pages 71-88, Autumn.
  13. Roon, F.A. de & Nijman, T.E. & Werker, B.J.M., 1999. "Currency Hedging for International Stock Portfolios: A General Approach," Discussion Paper 1999-123, Tilburg University, Center for Economic Research.
  14. Raymond Kan & Guofu Zhou, 2012. "Tests of Mean-Variance Spanning," Annals of Economics and Finance, Society for AEF, vol. 13(1), pages 139-187, May.
  15. Wayne E. Ferson & Ravi Jagannathan, 1996. "Econometric evaluation of asset pricing models," Staff Report 206, Federal Reserve Bank of Minneapolis.

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