Advanced Search

Are Asset-Demand Functions Determined by CAPM?

Contents:

Author Info

  • Jeffrey A. Frankel and William T. Dickens.

Abstract

The Capital Asset Pricing Model (CAPH) says that the responsiveness of asset-demands to expected returns depends (inversely) on the variance-covariance matrix of returns, rather than being an arbitrary set of parameters.Previous tests of CAPM have usually computed covariances of returns around sample means, and then checked whether the riskier assets are those with the higher mean returns. We offer a new technique for testing CAPM. The technique requires the use of time series data on actual asset-holdings, and non-linear maximum likelihood estimation. We claim superiority to earlier tests on three grounds. (1) We allow expected returns to vary freely overtime.(2) The alternative hypothesis is well-specified: asset-demands are linear functions of expected returns that do not depend on the variance-covariance matrix.(3) The test-statistic has a known distribution; it is simply a likelihood ratio test. We try the technique on yearly data, 1954-1980, for household holdings of a portfolio of six assets: short-term bills and deposits, tangible assets, federal debt, state and local debt, corporate debt, and equities. Our test rejects the CAPM hypothesis.

(This abstract was borrowed from another version of this item.)

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by University of California at Berkeley in its series Research Program in Finance Working Papers with number 140.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 01 May 1983
Date of revision:
Handle: RePEc:ucb:calbrf:140

Contact details of provider:
Postal: University of California at Berkeley, Berkeley, CA USA
Phone: 510-642-0822
Fax: 510-642-6615
Email:
Web page: http://haas.berkeley.edu/finance/WP/rpflist.html
More information through EDIRC

Order Information:
Postal: IBER, F502 Haas Building, University of California at Berkeley, Berkeley CA 94720-1922
Email:

For corrections or technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
  2. Ross, Stephen A, 1978. "The Current Status of the Capital Asset Pricing Model (CAPM)," Journal of Finance, American Finance Association, vol. 33(3), pages 885-901, June.
  3. Black, Stanley W, 1976. "Rational Response to Shocks in a Dynamic Model of Capital Asset Pricing," American Economic Review, American Economic Association, vol. 66(5), pages 767-79, December.
  4. Frankel, Jeffrey & Engel, Charles M., 1984. "Do asset-demand functions optimize over the mean and variance of real returns? A six-currency test," Journal of International Economics, Elsevier, vol. 17(3-4), pages 309-323, November.
  5. Gibbons, Michael R., 1982. "Multivariate tests of financial models : A new approach," Journal of Financial Economics, Elsevier, vol. 10(1), pages 3-27, March.
  6. Benjamin M. Friedman & V. Vance Roley, 1979. "A Note on the Derivation of Linear Homogeneous Asset Demand Functions," NBER Working Papers 0345, National Bureau of Economic Research, Inc.
  7. Blume, Marshall E & Friend, Irwin, 1973. "A New Look at the Capital Asset Pricing Model," Journal of Finance, American Finance Association, vol. 28(1), pages 19-33, March.
  8. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
  9. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc.
  10. Frankel, Jeffrey A., 1982. "In search of the exchange risk premium: A six-currency test assuming mean-variance optimization," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 255-274, January.
  11. William D. Nordhaus & Steven N. Durlauf, 1982. "The Structure of Social Risk," Cowles Foundation Discussion Papers 648, Cowles Foundation for Research in Economics, Yale University.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
Cited by:
  1. Charles Engel & Jeffrey A. Frankel & Kenneth A. Froot & Anthony P. Rodrigues, 1989. "Conditional Mean-Variance Efficiency of the U.S. Stock Market," NBER Working Papers 2890, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ucb:calbrf:140

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.