A net beta test of asset pricing models

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...

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Main Authors:	Cherif Guermat, Mark Freeman
Format:	Default Article
Published:	2010
Subjects:	Other commerce, management, tourism and services not elsewhere classified Other law and legal studies not elsewhere classified Factor models Capital asset pricing Conditional beta tests Law Business and Management not elsewhere classified
Online Access:	https://hdl.handle.net/2134/15029
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id	rr-article-9503447
record_format	Figshare
spelling	rr-article-95034472010-01-01T00:00:00Z A net beta test of asset pricing models Cherif Guermat (7199531) Mark Freeman (1248162) Other commerce, management, tourism and services not elsewhere classified Other law and legal studies not elsewhere classified Factor models Capital asset pricing Conditional beta tests Law Business and Management not elsewhere classified 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. 2010-01-01T00:00:00Z Text Journal contribution 2134/15029 https://figshare.com/articles/journal_contribution/A_net_beta_test_of_asset_pricing_models/9503447 CC BY-NC-ND 4.0
institution	Loughborough University
collection	Figshare
topic	Other commerce, management, tourism and services not elsewhere classified Other law and legal studies not elsewhere classified Factor models Capital asset pricing Conditional beta tests Law Business and Management not elsewhere classified
spellingShingle	Other commerce, management, tourism and services not elsewhere classified Other law and legal studies not elsewhere classified Factor models Capital asset pricing Conditional beta tests Law Business and Management not elsewhere classified Cherif Guermat Mark Freeman A net beta test of asset pricing models
description	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.
format	Default Article
author	Cherif Guermat Mark Freeman
author_facet	Cherif Guermat Mark Freeman
author_sort	Cherif Guermat (7199531)
title	A net beta test of asset pricing models
title_short	A net beta test of asset pricing models
title_full	A net beta test of asset pricing models
title_fullStr	A net beta test of asset pricing models
title_full_unstemmed	A net beta test of asset pricing models
title_sort	net beta test of asset pricing models
publishDate	2010
url	https://hdl.handle.net/2134/15029
_version_	1796832467492012032

A net beta test of asset pricing models

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