IDEAS home Printed from
   My bibliography  Save this article

Multivariate test of Sharpe-Lintner CAPM with time-varying beta


  • P.-S. Wu
  • J.-S. Chiou


This study considers two important features of most time series analysis, i.e. nonlinearity and time-varying risk, to test the validity of Sharpe-Lintner Capital asset pricing model (CAPM). By using data on BM- and size-sorted quintile portfolios, this study resolves the problem of error-in-variables by estimating the firm-specific betas, of which the Kalman filter and the betas obtained from based-sectional analysis are used. From pooled data, this study finds time variance in the systematic risk for certain portfolios. Additionally, the proposed model rejects the Shape-Lintner CAPM. Firm BM(size) appears to be the reason for the rejection of CAPM and firm earnings in excess of predicted CAPM appear to increase(decrease) with bigger(smaller) BM(size).

Suggested Citation

  • P.-S. Wu & J.-S. Chiou, 2007. "Multivariate test of Sharpe-Lintner CAPM with time-varying beta," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(5), pages 335-341.
  • Handle: RePEc:taf:apfelt:v:3:y:2007:i:5:p:335-341
    DOI: 10.1080/17446540701206584

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apfelt:v:3:y:2007:i:5:p:335-341. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.