Get 20M+ Full-Text Papers For Less Than $1.50/day. Subscribe now for You or Your Team.

Learn More →

Pricing Model Performance and the Two‐Pass Cross‐Sectional Regression Methodology

Pricing Model Performance and the Two‐Pass Cross‐Sectional Regression Methodology ABSTRACT Over the years, many asset pricing studies have employed the sample cross‐sectional regression (CSR) R2 as a measure of model performance. We derive the asymptotic distribution of this statistic and develop associated model comparison tests, taking into account the impact of model misspecification on the variability of the CSR estimates. We encounter several examples of large R2 differences that are not statistically significant. A version of the intertemporal capital asset pricing model (CAPM) exhibits the best overall performance, followed by the Fama–French three‐factor model. Interestingly, the performance of prominent consumption CAPMs is sensitive to variations in experimental design. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Pricing Model Performance and the Two‐Pass Cross‐Sectional Regression Methodology

Loading next page...
 
/lp/wiley/pricing-model-performance-and-the-two-pass-cross-sectional-regression-QdVOCJI0pu

References (85)

Publisher
Wiley
Copyright
© 2013 the American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/jofi.12035
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Over the years, many asset pricing studies have employed the sample cross‐sectional regression (CSR) R2 as a measure of model performance. We derive the asymptotic distribution of this statistic and develop associated model comparison tests, taking into account the impact of model misspecification on the variability of the CSR estimates. We encounter several examples of large R2 differences that are not statistically significant. A version of the intertemporal capital asset pricing model (CAPM) exhibits the best overall performance, followed by the Fama–French three‐factor model. Interestingly, the performance of prominent consumption CAPMs is sensitive to variations in experimental design.

Journal

The Journal of FinanceWiley

Published: Dec 1, 2013

There are no references for this article.