Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53782
Authors: 
Gungor, Sermin
Luger, Richard
Year of Publication: 
2010
Series/Report no.: 
Bank of Canada Working Paper 2010,36
Abstract: 
We develop a finite-sample procedure to test the beta-pricing representation of linear factor pricing models that is applicable even if the number of test assets is greater than the length of the time series. Our distribution-free framework leaves open the possibility of unknown forms of non-normalities, heteroskedasticity, time-varying correlations, and even outliers in the asset returns. The power of the proposed test procedure increases as the time-series lengthens and/or the cross-section becomes larger. This stands in sharp contrast to the usual tests that lose power or may not even be computable if the cross-section is too large. Finally, we revisit the CAPM and the Fama-French three factor model. Our results strongly support the mean-variance efficiency of the market portfolio.
Subjects: 
Econometric and statistical methods
Financial markets
JEL: 
C12
C14
C33
G11
G12
Document Type: 
Working Paper

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