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Bayesian asset pricing testing under multivariate t-distribution

Author

Listed:
  • Heng Zhang
  • Nianling Wang
  • Yong Li
  • Yiwei Zhan

Abstract

The distribution of asset returns has often been proved to be heavy-tailed. In this paper, based on the Fama-French five-factor model with multivariate t-distribution, we develop a convenient and explicit Bayesian approach to test asset pricing. The developed test statistic is only by-product of the Markov Chain Monte Carlo (MCMC) outputs, and hence it is very convenient in practice. Simulation studies demonstrate the effectiveness of the finite sample performance of the proposed approach. Finally, the Fama-French data are used for testing the efficiency of financial markets, and the result shows that the market efficiency is rejected.

Suggested Citation

  • Heng Zhang & Nianling Wang & Yong Li & Yiwei Zhan, 2019. "Bayesian asset pricing testing under multivariate t-distribution," Applied Economics Letters, Taylor & Francis Journals, vol. 26(11), pages 898-901, June.
    • Handle: RePEc:taf:apeclt:v:26:y:2019:i:11:p:898-901
    DOI: 10.1080/13504851.2018.1512740
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