Tests of the CAPM with Time-Varying Covariances: A Multivariate GARCH Approach

Lilian Ng

Journal of Finance, 1991, vol. 46, issue 4, 1507-21

Abstract: This paper examines an asset pricing model in which the Sharpe-Lintner capital asset pricing model and the zero-beta capital asset pricing model are special cases. The model allows the ratio of expected market risk premium to market variance, the conditional expected excess returns, and the risks to change over time. The results are found to be sensitive to the choice of the portfolio formation techniques. Significant time variability is shown in the conditional expected excess asset returns and risks and also in the reward-to-risk ratio. Copyright 1991 by American Finance Association.

Date: 1991
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