The performance of cross-sectional regression tests of the CAPM with non-zero pricing errors
We show that in the presence of non-zero pricing errors, the Fama–MacBeth (FM) cross-sectional regression test is very likely to either reject the Capital Asset Pricing Model (CAPM) when it (almost) holds or accept the model when it grossly fails. We investigate the case when pricing errors are corr...
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| Veröffentlicht in: | Journal of banking & finance 2012-04, Vol.36 (4), p.1057-1066 |
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| container_end_page | 1066 |
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| container_issue | 4 |
| container_start_page | 1057 |
| container_title | Journal of banking & finance |
| container_volume | 36 |
| creator | Murtazashvili, Irina Vozlyublennaia, Nadia |
| description | We show that in the presence of non-zero pricing errors, the Fama–MacBeth (FM) cross-sectional regression test is very likely to either reject the Capital Asset Pricing Model (CAPM) when it (almost) holds or accept the model when it grossly fails. We investigate the case when pricing errors are correlated with betas and demonstrate that the test performance depends crucially on the correlation, cross-sectional distribution of betas, and several other parameter values. Even when the CAPM holds exactly (pricing errors are zero) the FM test is equally likely to either reject or accept the model when typical sample sizes are used. |
| doi_str_mv | 10.1016/j.jbankfin.2011.10.018 |
| format | Article |
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We investigate the case when pricing errors are correlated with betas and demonstrate that the test performance depends crucially on the correlation, cross-sectional distribution of betas, and several other parameter values. Even when the CAPM holds exactly (pricing errors are zero) the FM test is equally likely to either reject or accept the model when typical sample sizes are used.</description><subject>Asset pricing</subject><subject>Beta</subject><subject>Capital</subject><subject>Capital assets</subject><subject>CAPM</subject><subject>Error</subject><subject>Errors</subject><subject>Fama-MacBeth procedure</subject><subject>Pricing errors</subject><subject>Regression analysis</subject><subject>Stock prices</subject><subject>Studies</subject><issn>0378-4266</issn><issn>1872-6372</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2012</creationdate><recordtype>article</recordtype><recordid>eNqFkF1LwzAYhYMoOKd_QYI3XrXmo03TO8fwCyZ6Me-EkDVvt9SumUmn6K83dXrjjSEQ8nLO4T0PQqeUpJRQcdGkzUJ3L7XtUkYojcOUULmHRlQWLBG8YPtoRHghk4wJcYiOQmhIPJLyEXqerwBvwNfOr3VXAXY1rrwLIQlQ9dZ1usUelh5CiB_cQ-jDoOmjbTp5vMfvtl_hznXJJ3iHN95Wtlti8N75cIwOat0GOPl5x-jp-mo-vU1mDzd308ksqTKe9UktF1BxYXIuclYUpmBMi5KWRuaaFiQzWU41o1m8nMdSNBPaAKs1M4YumORjdL7L3Xj3uo0rqrUNFbSt7sBtgyqZLGUZvVF59kfZuK2PJQdRRkiZl0Oc2Im-QXioVay11v5DUaIG5KpRv8jVgHyYR-TReLkzQiz7ZsGrUFmIVI31kaYyzv4X8QXpyIyq</recordid><startdate>20120401</startdate><enddate>20120401</enddate><creator>Murtazashvili, Irina</creator><creator>Vozlyublennaia, Nadia</creator><general>Elsevier B.V</general><general>Elsevier Sequoia S.A</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>20120401</creationdate><title>The performance of cross-sectional regression tests of the CAPM with non-zero pricing errors</title><author>Murtazashvili, Irina ; Vozlyublennaia, Nadia</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c434t-f8bec36d5365277d722a6919d85a1704d451a21421433187146ade2fa2dd1b283</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2012</creationdate><topic>Asset pricing</topic><topic>Beta</topic><topic>Capital</topic><topic>Capital assets</topic><topic>CAPM</topic><topic>Error</topic><topic>Errors</topic><topic>Fama-MacBeth procedure</topic><topic>Pricing errors</topic><topic>Regression analysis</topic><topic>Stock prices</topic><topic>Studies</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Murtazashvili, Irina</creatorcontrib><creatorcontrib>Vozlyublennaia, Nadia</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of banking & finance</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Murtazashvili, Irina</au><au>Vozlyublennaia, Nadia</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>The performance of cross-sectional regression tests of the CAPM with non-zero pricing errors</atitle><jtitle>Journal of banking & finance</jtitle><date>2012-04-01</date><risdate>2012</risdate><volume>36</volume><issue>4</issue><spage>1057</spage><epage>1066</epage><pages>1057-1066</pages><issn>0378-4266</issn><eissn>1872-6372</eissn><coden>JBFIDO</coden><abstract>We show that in the presence of non-zero pricing errors, the Fama–MacBeth (FM) cross-sectional regression test is very likely to either reject the Capital Asset Pricing Model (CAPM) when it (almost) holds or accept the model when it grossly fails. We investigate the case when pricing errors are correlated with betas and demonstrate that the test performance depends crucially on the correlation, cross-sectional distribution of betas, and several other parameter values. Even when the CAPM holds exactly (pricing errors are zero) the FM test is equally likely to either reject or accept the model when typical sample sizes are used.</abstract><cop>Amsterdam</cop><pub>Elsevier B.V</pub><doi>10.1016/j.jbankfin.2011.10.018</doi><tpages>10</tpages></addata></record> |
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| ispartof | Journal of banking & finance, 2012-04, Vol.36 (4), p.1057-1066 |
| issn | 0378-4266 1872-6372 |
| language | eng |
| recordid | cdi_proquest_miscellaneous_928989331 |
| source | Elsevier ScienceDirect Journals |
| subjects | Asset pricing Beta Capital Capital assets CAPM Error Errors Fama-MacBeth procedure Pricing errors Regression analysis Stock prices Studies |
| title | The performance of cross-sectional regression tests of the CAPM with non-zero pricing errors |
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