Testing the CAPM with Time‐Varying Risks and Returns

Testing the CAPM with Time‐Varying Risks and Returns ABSTRACT This paper draws on Engle's autoregressive conditionally heteroskedastic modeling strategy to formulate a conditional CAPM with time‐varying risk and expected returns. The model is estimated by generalized method of moments. A CAPM that allows mean excess returns to shift in January survives generalized method of moments specification tests for a number of omitted variables. However, a residual dividend yield component is found to remain in the excess returns of smaller firms. We find significant monthly and quarterly components in the risk premia and beta estimates. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Testing the CAPM with Time‐Varying Risks and Returns

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Publisher
Wiley
Copyright
1991 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.1991.tb04627.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper draws on Engle's autoregressive conditionally heteroskedastic modeling strategy to formulate a conditional CAPM with time‐varying risk and expected returns. The model is estimated by generalized method of moments. A CAPM that allows mean excess returns to shift in January survives generalized method of moments specification tests for a number of omitted variables. However, a residual dividend yield component is found to remain in the excess returns of smaller firms. We find significant monthly and quarterly components in the risk premia and beta estimates.

Journal

The Journal of FinanceWiley

Published: Sep 1, 1991

References

  • A new look at the capital asset pricing model
    Blume, Blume; Irwin, Irwin
  • Stock returns, expected returns and real activity
    Fama, Fama
  • Tests of the asset pricing with time‐varying risk premiums and market betas
    Ferson, Ferson; Shmuel, Shmuel; Robert, Robert
  • The time variation of risk and return in the foreign exchange and stock markets
    Giovannini, Giovannini; Philippe, Philippe
  • Large sample properties of generalized method of moments estimators
    Hansen, Hansen
  • Tests of the CAPM with time‐varying covariances: A multivariate GARCH approach
    Ng, Ng
  • Why does stock market volatility change over time?
    Schwert, Schwert

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