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Using the Capital Asset Pricing Model and the Market Model to Predict Security Returns

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  • Pettit, R. Richardson
  • Westerfield, Randolph

Abstract

This paper examines the validity of two widely used methods for forming conditional predicted portfolio returns. The first method relies on a one-period, mean-variance theory of equilibrium expected return, sometimes referred to as the “capital asset pricing model†(CAPM). The second method is based upon a proposal by Markowitz [14] and is called the [market model] (MM).

Suggested Citation

  • Pettit, R. Richardson & Westerfield, Randolph, 1974. "Using the Capital Asset Pricing Model and the Market Model to Predict Security Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(4), pages 579-605, September.
    • Handle: RePEc:cup:jfinqa:v:9:y:1974:i:04:p:579-605_01
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    Cited by:

    1. GUORUI BIAN & MICHAEL McALEER & WING-KEUNG WONG, 2013. "Robust Estimation And Forecasting Of The Capital Asset Pricing Model," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-18.
    2. Wing-Keung Wong & Guorui Bian, 2005. "Robust Estimation of Multiple Regression Model with Non-normal Error: Symmetric Distribution," Monash Economics Working Papers 09/05, Monash University, Department of Economics.

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