Testing the CAPM revisited

Surajit Ray; N.E. Savin; Ashish Tiwari

doi:10.1016/j.jempfin.2009.07.006

Back

Journal article

Peer reviewed

Testing the CAPM revisited

Surajit Ray, N.E. Savin and Ashish Tiwari

Journal of empirical finance, Vol.16(5), pp.721-733

12/01/2009

DOI: 10.1016/j.jempfin.2009.07.006

View Online

Abstract

This paper re-examines the tests of the Sharpe–Lintner Capital Asset Pricing Model (CAPM). The null that the CAPM intercepts are zero is tested for ten size-based stock portfolios and for twenty five book-to-market sorted portfolios using five-year, ten-year and longer sub-periods during 1965–2004. The paper shows that the evidence for rejecting the CAPM on statistical grounds is weaker than the consensus view suggests, and highlights the pitfalls of testing multiple hypotheses with the conventional heteroskedasticity and autocorrelation robust (HAR) test with asymptotic P-values. The conventional test rejects the null for almost all sub-periods, which is consistent with the evidence in the literature. By contrast, the null is not rejected for most of the sub-periods by the new HAR tests developed by Kiefer et al. (2000), Kiefer and Vogelsang (2005), and Sun et al. (2008).

Bartlett and Parzen kernels

CAPM

Heteroskedasticity and autocorrelation consistent estimators

Heteroskedasticity and autocorrelation robust tests

Details

Title: Subtitle: Testing the CAPM revisited
Creators: Surajit Ray - Morgan Stanley
N.E. Savin - University of Iowa
Ashish Tiwari - University of Iowa
Resource Type: Journal article
Publication Details: Journal of empirical finance, Vol.16(5), pp.721-733
Publisher: Elsevier B.V
DOI: 10.1016/j.jempfin.2009.07.006
ISSN: 0927-5398
eISSN: 1879-1727
Language: English
Date published: 12/01/2009
Academic Unit: Finance
Record Identifier: 9984380500402771

Metrics

3 Record Views

9 Times Cited - Web of Science