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ARBITRAGE PRICING MODELS: THE SUFFICIENT NUMBER OF FACTORS AND EQUILIBRIUM CONDITIONS

ARBITRAGE PRICING MODELS: THE SUFFICIENT NUMBER OF FACTORS AND EQUILIBRIUM CONDITIONS The typical methodology for estimating an Arbitrage Pricing Model is inadequate with respect to two issues. First, the statistical tests used to determine the sufficient number of factors are inappropriate and may actually overstate the relevant number of factors. Second, the methodology fails to determine whether the estimated model satisfies equilibrium conditions. A simple test that corrects both deficiencies is developed in this paper. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Financial Research Wiley

ARBITRAGE PRICING MODELS: THE SUFFICIENT NUMBER OF FACTORS AND EQUILIBRIUM CONDITIONS

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References (9)

Publisher
Wiley
Copyright
© The Southern Finance Association and the Southwestern Finance Association
ISSN
0270-2592
eISSN
1475-6803
DOI
10.1111/j.1475-6803.1987.tb00483.x
Publisher site
See Article on Publisher Site

Abstract

The typical methodology for estimating an Arbitrage Pricing Model is inadequate with respect to two issues. First, the statistical tests used to determine the sufficient number of factors are inappropriate and may actually overstate the relevant number of factors. Second, the methodology fails to determine whether the estimated model satisfies equilibrium conditions. A simple test that corrects both deficiencies is developed in this paper.

Journal

The Journal of Financial ResearchWiley

Published: Jun 1, 1987

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