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Time-Series and Cross-Sectional Tests of Asset Pricing Models

In: Encyclopedia of Finance

Author

Listed:
  • Kyung-Jin Choi

    (Korea University Business School)

  • Dongcheol Kim

    (Korea University Business School & SolBridge International School of Business at Woosong University)

  • Soon-Ho Kim

    (Pukyong National University)

Abstract

This chapter reviews the methodologies of testing asset pricing models which are dominantly used in the literature: time-series regression tests and cross-sectional regression tests. We provide some explanations for the test procedure of time-series regression tests and cross-sectional regression tests. We discuss individual t-test, the joint F-test by Gibbons, Ross, and Shanken (Econometrica 57:1121–1152, 1989), and tests based on the generalized method of moments estimation. We also explain the two-pass test methodology and discuss the errors-in-variables problem which occurs inevitably in the two-pass methodology.

Suggested Citation

  • Kyung-Jin Choi & Dongcheol Kim & Soon-Ho Kim, 2022. "Time-Series and Cross-Sectional Tests of Asset Pricing Models," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 63, pages 1467-1483, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_63
    DOI: 10.1007/978-3-030-91231-4_63
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