Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258860 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 15 [Issue:] 3 [Article No.:] 137 [Publisher:] MDPI [Place:] Basel [Year:] 2022 [Pages:] 1-23
Publisher: 
MDPI, Basel
Abstract: 
In a recent book, Kolari et al. developed a new theoretical capital asset pricing model dubbed the ZCAPM. Based on out-of-sample cross-sectional tests using U.S. stocks, the ZCAPM consistently outperformed well-known multifactor models popular in the finance literature. This paper presents further evidence that expands their sample period from 1927 to 2020. Results are provided for the subperiods 1927 to 1964 and 1965 to 2020. Our results corroborate those of KLH. In cross-sectional tests, the ZCAPM outperforms the CAPM as well as the Fama and French three-factor model and Carhart four-factor model. Outperformance is found in terms of both higher goodness of fit and the statistical significance of factor loadings. Interestingly, the earlier subperiod results highlight problems with the endogeneity of test assets in cross-sectional tests of multifactor models.
Subjects: 
asset pricing
zero-beta CAPM
return dispersion
expectation-maximization (EM) regression
latent variable
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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