ASSET PRICING MODEL ESTIMATION ERRORS DURING RATIONAL AND IRRATIONAL INVESTOR BEHAVIOR PERIODS

Michael G. Marsh and Marc Muchnick

The International Journal of Business and Finance Research, 2019, vol. 13, issue 2, 45-69

Abstract: This paper examines the prediction that human behavior changes the outcome of market predictability, indicated by a difference in asset pricing model estimated prediction error, calculated using the Sharpe ratio, Jensen’s alpha, and the Treynor measure for publicly traded firms in the consumer discretionary and consumer staples sectors. Applying a series of independent t-tests to mean comparisons of these measures ultimately provided mixed results, demonstrating a statistically significant difference only with Jensen’s alpha and the Sharpe ratio in both sectors. This indicates a need for extra caution for asset pricing model use under potentially irrational periods

Keywords: Asset Pricing; Behavioral Finance; Irrationality; Beta (search for similar items in EconPapers)
JEL-codes: G12 G41 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:13:y:2019:i:2:p:45-69

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