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A net beta test of asset pricing models

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  • Guermat, Cherif
  • Freeman, Mark C.
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    Abstract

    While many recent empirical studies of the CAPM have used conditional beta tests, this technique has recently been shown to have several weaknesses. Here we introduce a new, more robust, net beta test which shares a number of characteristics with conditional beta tests. The method is extended to the multi-factor case when there are mimicking portfolios of assets for the underlying factors, including the Fama-French three-factor model. We demonstrate theoretically, by simulation and using market data that the net beta estimators have lower standard errors than those generated by the standard Fama-MacBeth test.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 19 (2010)
    Issue (Month): 1 (January)
    Pages: 1-9

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    Handle: RePEc:eee:finana:v:19:y:2010:i:1:p:1-9

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Factor models Capital asset pricing Conditional beta tests;

    References

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    Cited by:
    1. Syed Abul, Basher, 2014. "Stock markets and energy prices," MPRA Paper 53863, University Library of Munich, Germany.

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