A Note on the GRS Test

Mark Kamstra () and Ruoyao Shi ()
Additional contact information
Mark Kamstra: Schulich School of Business, York University
Ruoyao Shi: Department of Economics, University of California Riverside

No 202111, Working Papers from University of California at Riverside, Department of Economics

Abstract: We clear up an ambiguity in Gibbons, Ross and Shanken (1989, GRS hereafter) by providing the correct formula of the GRS test statistic and proving its exact F distribution in the general multiple portfolio case. We generalize the Sharpe ratio based interpretation of the GRS test to the multiple portfolio case, which we argue paradoxically makes experts in asset pricing studies more susceptible to an incorrect formula. We theoretically and empirically illustrate the consequences of using the incorrect formula -- over-rejecting and mis-ranking asset pricing models.

Keywords: GRS test; asset pricing; CAPM; multivariate test; portfolio efficiency; Sharpe ratio; over-rejection; model ranking (search for similar items in EconPapers)
Pages: 18 Pages
Date: 2021-07
New Economics Papers: this item is included in nep-ecm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://economics.ucr.edu/repec/ucr/wpaper/202111.pdf First version, 2021 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:202111

Access Statistics for this paper

More papers in Working Papers from University of California at Riverside, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Kelvin Mac ().