CAPM Reconsidered: A Robust Finite Sample Evaluation
AbstractIn this paper, the conventional test of the Sharpe-Lintner version of the Capital Asset Pricing Model (CAPM) are reconsidered. The CAPM is formulated as a Seemingly Unrelated Regression (SUR) system with an adding-up restriction. A statistical framework for conducting the conventional tests is provided. A Wald statistic that takes into account the adding-up restriction and that is robust to heteroskedasticity and/or autocorrelation of unknown form is used to test the CAPM. The robust Wald test with asymptotic critical values rejects the CAPM for most subsamples. Monte Carlo simulations are then performed to obtain the finite sample critical values. Our empirical results show that the CAPM is consistent with the data when the tests are based on finite sample critical values.
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Bibliographic InfoPaper provided by University of Iowa, Department of Economics in its series Working Papers with number 99-04.
Length: 32 pages
Date of creation: May 1999
Date of revision:
Contact details of provider:
Postal: University of Iowa, Department of Economics, Henry B. Tippie College of Business, Iowa City, Iowa 52242
Phone: (319) 335-0829
Fax: (319) 335-1956
Web page: http://tippie.uiowa.edu/economics/
More information through EDIRC
CAPM; SUR system; Adding-Up; Finite sample distribution; Robust Wald test;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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