A net beta test of asset pricing models
journal contributionposted on 26.06.2014, 10:50 by Cherif Guermat, Mark Freeman
While many recent empirical studies of the CAPM have used conditional beta tests, this technique has recently been shown to have several weaknesses. Here we introduce a new, more robust, net beta test which shares a number of characteristics with conditional beta tests. The method is extended to the multi-factor case when there are mimicking portfolios of assets for the underlying factors, including the Fama-French three-factor model. We demonstrate theoretically, by simulation and using market data that the net beta estimators have lower standard errors than those generated by the standard Fama-MacBeth test. © 2009 Elsevier Inc. All rights reserved.
- Business and Economics