Solving an empirical puzzle in the capital asset pricing model

John Leusner, Jalal Akhavein () and P.A.V.B. Swamy

No 96-14, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A long standing puzzle in the Capital Asset Pricing Model (CAPM) has been the inability of empirical work to validate it. This paper presents a new approach to estimating the CAPM, taking into account the differences between observable and expected returns for risky assets and for the market portfolio of all traded assets, as well as inherent nonlinearities and the effects of excluded variables. Using this approach, we provide evidence that the relation between the observable returns on stock and market portfolios is nonlinear.

Keywords: Capital; assets; pricing; model (search for similar items in EconPapers)
Date: 1996
View list of references View citations in EconPapers

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/1996/199614/199614abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/1996/199614/199614pap.pdf (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: http://EconPapers.repec.org/RePEc:fip:fedgfe:96-14

Ordering information: This working paper can be ordered from
http://www.federalre ... /feds/fedsorder.html

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().