Title: A Test of the Homogeneity of Asset pricing Models
Abstract: Chapter 9 A Test of the Homogeneity of Asset pricing Models Giovanni Barone-Adesi, Giovanni Barone-AdesiSearch for more papers by this authorPatrick Gagliardini, Patrick GagliardiniSearch for more papers by this authorGiovanni Urga, Giovanni UrgaSearch for more papers by this author Giovanni Barone-Adesi, Giovanni Barone-AdesiSearch for more papers by this authorPatrick Gagliardini, Patrick GagliardiniSearch for more papers by this authorGiovanni Urga, Giovanni UrgaSearch for more papers by this author Book Editor(s):Emmanuel Jurczenko, Emmanuel JurczenkoSearch for more papers by this authorBertrand Maillet, Bertrand MailletSearch for more papers by this author First published: 02 January 2012 https://doi.org/10.1002/9781119201830.ch9 AboutPDFPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShareShare a linkShare onEmailFacebookTwitterLinkedInRedditWechat Summary This chapter introduces a quadratic market specification to model the co-skewness of an individual asset with the market portfolio and explain the size effect on the US stock market. Expected returns on financial assets are usually modelled as linear functions of covariances of returns with some systematic risk factors. The evolution of financial asset returns shows significant co-movements. Factor models try to explain these co-movements by a rather small number of underlying variables, called factors, which have a common effect on the return dynamics. The quadratic market model is an extension of the traditional market model, where market returns and the square of the market returns are the two factors. To investigate the effects of possible misspecifications of the return-generating process on tests of asset pricing models, this chapter examines the portfolios used by Jagannathan and Wang. REFERENCES Baltagi, B. H. and J. M. Griffin (1997) Pooled Estimators versus their Heterogenous Counterparts in the Context of Dynamic Demand for Gasoline, Journal of Econometrics 77, 303–327. 10.1016/S0304-4076(96)01802-7 Web of Science®Google Scholar Baltagi, B. H., J. M. Griffin and W. Xiong (2000) To Pool or not to Pool: Homogenous versus Heterogenous Estimators Applied to Cigarette Demand, Review of Economics and Statistics 82, 117–126. 10.1162/003465300558551 Web of Science®Google Scholar Banz, R. W. (1981) The Relationship Between Return and Market Value of Common Stocks, Journal of Financial Economics 9, 3–18. 10.1016/0304-405X(81)90018-0 Web of Science®Google Scholar Barone-Adesi, G. (1985) Arbitrage Equilibrium with Skewed Asset Returns, Journal of Financial and Quantitative Analysis 20, 299–313. 10.2307/2331032 Web of Science®Google Scholar Barone-Adesi, G., Gagliardini, P. and G. Urga (2004) Testing Asset Pricing Models with Coskewness, Journal of Business and Economic Statistics 22, 474–485. 10.1198/073500104000000244 Web of Science®Google Scholar Black, F. (1972) Capital Market Equilibrium with Restricted Borrowing, Journal of Business 45, 444–455. 10.1086/295472 PubMedGoogle Scholar Breeden, D. T. (1979) An Intertemporal Asset Pricing Model with Stochastic Consumption and Investment Opportunities, Journal of Financial Economics 7, 265–296. 10.1016/0304-405X(79)90016-3 Web of Science®Google Scholar Campbell, J. Y. (2000) Asset Pricing at the Millenium, Journal of Finance 4, 1515–1567. 10.1111/0022-1082.00260 Web of Science®Google Scholar Chamberlain, G. and M. Rothschild (1983) Arbitrage, Factor Structure and Mean Variance Analysis in Large Asset Markets, Econometrica 51, 1281–1301. 10.2307/1912275 Web of Science®Google Scholar Cochrane, J. H. (1996) A Cross-sectional Test of an Investment-based Asset Pricing Model, Journal of Political Economy 104, 572–621. 10.1086/262034 Web of Science®Google Scholar Fama, E. and K. R. French (1995) Size and Book-to-Market Factors in Earnings and Returns, Journal of Finance 50, 131–155. 10.1111/j.1540-6261.1995.tb05169.x Web of Science®Google Scholar Haque, N. U., Pesaran, M. H. and S. Sharma (1999) Neglected Heterogeneity and Dynamics in Cross-Country Saving Regressions. In: Panel Data Econometrics: Future Directions. Papers in Honour of Prof. Balestra, J. Krisnakumar and E. Ronchetti (Eds), Elsevier Science. Google Scholar Harvey, C. R. and A. Siddique (2000) Conditional Skewness in Asset Pricing Tests, Journal of Finance 55, 1263–1295. 10.1111/0022-1082.00247 Web of Science®Google Scholar Hsiao, C., Pesaran, M. H. and A. K. Tahmiscioglu (1999) Bayes Estimation of Short-Run Coefficients in Dynamic Panel Data Models. In: Analysis of Panels and Limited Dependent Variable Models: A Volume in Honour of G. S. Maddala, C. Hsiao, K. Lahiri, L-F. Lee and M.H. Pesaran (Eds), Cambridge University Press, Cambridge. 10.1017/CBO9780511493140 Google Scholar Jagannathan, R. and Z. Wang (1996) The Conditional CAPM and the Cross-Section of Expected Returns, Journal of Finance 51, 3–53. 10.1111/j.1540-6261.1996.tb05201.x Web of Science®Google Scholar Kan, R. and C. Zhang (1999a) GMM Test of Stochastic Discount Factor Models with Useless Factors, Journal of Financial Economics 54, 103–127. 10.1016/S0304-405X(99)00033-1 Web of Science®Google Scholar Kan, R. and C. Zhang (1999b) Two-Pass Tests of Asset Pricing Models with Useless Factors, Journal of Finance 54, 203–235. 10.1111/0022-1082.00102 Web of Science®Google Scholar Kraus, A. and R. Litzenberger (1976) Skewness Preferences and the Valuation of Risk Assets, Journal of Finance 31, 1085–1100. 10.1111/j.1540-6261.1976.tb01961.x Web of Science®Google Scholar Lintner, J. (1965) The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets, Review of Economics and Statistics 47, 13–37. 10.2307/1924119 Web of Science®Google Scholar McElroy, M. (1977) Goodness of Fit for Seemingly Unrelated Regressions: Glahn's R2y,x and Hooper's r-2 , Journal of Econometrics 6, 381–387. 10.1016/0304-4076(77)90008-2 Google Scholar Merton, R. C. (1973) An Intertemporal Capital Asset Pricing Model, Econometrica 41, 867–887. 10.2307/1913811 Web of Science®Google Scholar Pesaran, M. H. and R. P. Smith (1995) Estimating Long-Run Relationships from Dynamic Heterogenous Panels, Journal of Econometrics 68, 79–113. 10.1016/0304-4076(94)01644-F Web of Science®Google Scholar Pesaran, M. H., Shin, Y. and R. P. Smith (1999) Bounds Testing Approaches to the Analysis of Long-Run Relationships, DAE Working Paper 9907, University of Cambridge. Google Scholar Robertson, D. and J. Symons (1992) Some Strange Properties of Panel Data Estimators, Journal of Applied Econometrics 7, 175–189. 10.1002/jae.3950070206 Web of Science®Google Scholar Ross, S. A. (1976) Arbitrage Theory of Capital Asset Pricing, Journal of Economic Theory 13, 341–360. 10.1016/0022-0531(76)90046-6 Web of Science®Google Scholar Shanken, J. (1992) On the Estimation of Beta Pricing Models, Review of Financial Studies 5, 1–33. 10.1093/rfs/5.1.1 Web of Science®Google Scholar Sharpe, W. F. (1964) Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk, Journal of Finance 40, 1189–1196. Google Scholar Multi‐moment Asset Allocation and Pricing Models ReferencesRelatedInformation
Publication Year: 2012
Publication Date: 2012-01-02
Language: en
Type: other
Indexed In: ['crossref']
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot