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A Cross-Sectional Test of an Investment-Based Asset Pricing Model

  • Cochrane, John H

The author examines a factor pricing model for stock returns. The factors are returns on physical investment, inferred from investment data via a production function. The author examines the model's ability to explain variation in expected returns across assets and over time. The model is not rejected. It performs about as well as the CAPM and the Chen, Roll, and Ross (1986) factor model, and it performs substantially better than a simple consumption-based model. The author also provides an easy technique for estimating and testing dynamic, conditional asset pricing models--one simply includes factors and returns scaled by instruments in an unconditional estimate--and for comparing such models. Copyright 1996 by University of Chicago Press.

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File URL: http://dx.doi.org/10.1086/262034
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 104 (1996)
Issue (Month): 3 (June)
Pages: 572-621

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Handle: RePEc:ucp:jpolec:v:104:y:1996:i:3:p:572-621
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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