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Testing beta-pricing models using large cross-sections
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Raponi, Valentina, Robotti, Cesare and Zaffaroni, Paolo (2020) Testing beta-pricing models using large cross-sections. Review of Financial Studies, 33 (6). pp. 2796-2842. hhz064. doi:10.1093/rfs/hhz064 ISSN 0893-9454.
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Official URL: https://doi.org/10.1093/rfs/hhz064
Abstract
We propose a methodology for estimating and testing beta-pricing models when a large number of assets is available for investment but the number of time-series observations is fixed. We first consider the case of correctly specified models with constant risk premia, and then extend our framework to deal with time-varying risk premia, potentially misspecified models, firm characteristics, and unbalanced panels. We show that our large cross-sectional framework poses a serious challenge to common empirical findings regarding the validity of beta-pricing models. In the context of pricing models with Fama-French factors, firm characteristics are found to explain a much larger proportion of variation in estimated expected returns than betas.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance Q Science > QA Mathematics |
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Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
SWORD Depositor: | Library Publications Router | ||||||||
Library of Congress Subject Headings (LCSH): | Capital assets pricing model, Finance -- Mathematical models, Investments, Time-series analysis | ||||||||
Journal or Publication Title: | Review of Financial Studies | ||||||||
Publisher: | Oxford University Press | ||||||||
ISSN: | 0893-9454 | ||||||||
Official Date: | June 2020 | ||||||||
Dates: |
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Volume: | 33 | ||||||||
Number: | 6 | ||||||||
Page Range: | pp. 2796-2842 | ||||||||
Article Number: | hhz064 | ||||||||
DOI: | 10.1093/rfs/hhz064 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Reuse Statement (publisher, data, author rights): | This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Financial Studies following peer review. The version of record Valentina Raponi, Cesare Robotti, Paolo Zaffaroni, Testing Beta-Pricing Models Using Large Cross-Sections, The Review of Financial Studies, , hhz064, is available online at: https://doi.org/10.1093/rfs/hhz064 | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 17 January 2020 | ||||||||
Date of first compliant Open Access: | 1 July 2021 | ||||||||
Related URLs: | |||||||||
Open Access Version: |
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