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A Mean-Variance Framework for Tests for Asset Pricing Models

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  • Shumel Kandel
  • Robert F. Stambaugh

Abstract

This paper presents a mean-variance framework for likelihood ration tests of asset pricing models. A pricing model is tested by examining the position of one of more reference portfolios is sample mean-standard-deviation space. Included are tests of both single-beta and multiple-beta relations, with or without a riskless asset, using either a general or a specific alternative hypothesis. Tests with factors that are not portfolio returns are also included. The mean-variance framework is illustrated by testing the zero-beta CAPM, a two-beta pricing model, and the consumption-beta model.

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Bibliographic Info

Paper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 25-88.

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Handle: RePEc:fth:pennfi:25-88

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Cited by:
  1. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini & Marco Taboga, 2008. "Portfolio Selection with Monotone Mean-Variance Preferences," Temi di discussione (Economic working papers) 664, Bank of Italy, Economic Research and International Relations Area.
  2. Claessens, Stijn, 1993. "Equity portfolio investment in developing countries : a literature survey," Policy Research Working Paper Series 1089, The World Bank.
  3. Shmuel Kandel & Robert McCulloch & Robert F. Stambaugh, 1993. "Bayesian Inference and Portfolio Efficiency," NBER Technical Working Papers 0134, National Bureau of Economic Research, Inc.
  4. Ronald J. Balvers & Dayong Huang, 2005. "Evaluation Of Linear Asset Pricing Models By Implied Portfolio Performance," Working Papers 05-06 Classification- JEL, Department of Economics, West Virginia University.
  5. Attiya Y. Javid & Eatzaz Ahmad, 2008. "The Conditional Capital Asset Pricing Model: Evidence from Karachi Stock Exchange," PIDE-Working Papers 2008:48, Pakistan Institute of Development Economics.
  6. Shmuel Kandel & Robert F. Stambaugh, 1994. "Portfolio Inefficiency and the Cross-Section of Expected Returns," NBER Working Papers 4702, National Bureau of Economic Research, Inc.
  7. Campbell R. Harvey, 1994. "Predictable Risk and Returns in Emerging Markets," NBER Working Papers 4621, National Bureau of Economic Research, Inc.
  8. Post, G.T., 2002. "Testing for Third-Order Stochastic Dominance with Diversification Possibilities," ERIM Report Series Research in Management ERS-2002-02-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 Uni.
  9. A. Craig MacKinlay, 1994. "Multifactor Models Do Not Explain Deviations from the CAPM," NBER Working Papers 4756, National Bureau of Economic Research, Inc.
  10. Javid, Attiya Yasmin, 2008. "Time Varying Risk Return Relationship: Evidence from Listed Pakistani Firms," MPRA Paper 37561, University Library of Munich, Germany.
  11. Kim, Daehwan, 2012. "Is currency hedging necessary for emerging-market equity investment?," Economics Letters, Elsevier, vol. 116(1), pages 67-71.
  12. Simon Stevenson, 2000. "International Real Estate Diversification: Empirical Tests using Hedged Indices," Journal of Real Estate Research, American Real Estate Society, vol. 19(1), pages 105-131.
  13. Post, G.T., 2001. "Testing for Stochastic Dominance with Diversification Possibilities," ERIM Report Series Research in Management ERS-2001-38-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 Uni.
  14. Wayne E. Ferson & Andrew F. Siegel, 2006. "Testing Portfolio Efficiency with Conditioning Information," NBER Working Papers 12098, National Bureau of Economic Research, Inc.

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