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Tests of the conditional asset pricing model: further evidence from the cross-section of stock returns

  • Stuart Hyde

    (University of Manchester, Manchester Business School, United Kingdom)

  • Mohamed Sherif

    (Department of Accountancy, Economics and Finance Riccarton, Heriot-Watt University, United Kingdom)

We analyse the ability of the conditional asset pricing models to explain the cross-sectional variation in UK stock returns. We examine conditional versions of the Sharpe-Linter CAPM and the Fama-French three-factor model. The results indicate that the conditional single-factor model is rejected in all instances. However, there is evidence supportive of the three-factor model. A specification of this model that allows for time variation in conditional covariances, conditionally expected returns and the conditional variance of the market cannot be rejected. Copyright © 2009 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 15 (2010)
Issue (Month): 2 ()
Pages: 198-211

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Handle: RePEc:ijf:ijfiec:v:15:y:2010:i:2:p:198-211
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