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The Predictive Performance of Asset Pricing Models: Evidence from the Australian Securities Exchange

Author

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  • Robert J. Bianchi

    (Department of Accounting, Finance and Economics, Griffith University, Brisbane, Queensland, Australia)

  • Michael E. Drew

    (Department of Accounting, Finance and Economics, Griffith University, Brisbane, Queensland, Australia)

  • Timothy Whittaker

    (EDHEC Infrastructure Institute, Singapore)

Abstract

This paper considers the accuracy (or otherwise) of cost of equity estimates provided by a range of Australian asset pricing models on industry returns. The results suggest that a simple, constant-benchmark approach (fixed excess return of five percent per annum) provides the best forecast for the cost of equity capital for the various industry segments of the Australian Securities Exchange examined across the observation window. Our results from Australia corroborate U.S. findings regarding the disconnect between asset pricing models that provide the best ex-post explanation of asset returns and models that produce superior ex-ante predictions of the cost of capital.

Suggested Citation

  • Robert J. Bianchi & Michael E. Drew & Timothy Whittaker, 2016. "The Predictive Performance of Asset Pricing Models: Evidence from the Australian Securities Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-18, December.
    • Handle: RePEc:wsi:rpbfmp:v:19:y:2016:i:04:n:s0219091516500235
    DOI: 10.1142/S0219091516500235
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    References listed on IDEAS

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    Cited by:

    1. Thomas Gramespacher & Armin Bänziger, 2019. "The Bias in Two-Pass Regression Tests of Asset-Pricing Models in Presence of Idiosyncratic Errors with Cross-Sectional Dependence," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-17, June.
    2. Shafiqur Rahman & Matthew J. Schneider, 2019. "Tests of Alternative Asset Pricing Models Using Individual Security Returns and a New Multivariate F-Test," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 1-34, March.

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