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Asset-Pricing Tests under Alternative Distributions

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  • Zhou, Guofu

Abstract

Given the normality assumption, the author rejects the mean-variance efficiency of the Center for Research in Security Prices value-weighted stock index for three of the six consecutive ten-year subperiods from 1926 to 1986. However, the normality assumption is strongly rejected by the data. Under plausible alternative distributional assumptions of the elliptical class, the efficiency can no longer be rejected. When the normality assumption is violated but the ellipticity assumption is maintained, many tests tend to be biased toward overrejection and both the accuracy of estimated beta and R ('superscript'2) are usually overstated. Copyright 1993 by American Finance Association.

Suggested Citation

  • Zhou, Guofu, 1993. "Asset-Pricing Tests under Alternative Distributions," Journal of Finance, American Finance Association, vol. 48(5), pages 1927-1942, December.
    • Handle: RePEc:bla:jfinan:v:48:y:1993:i:5:p:1927-42
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