A net beta test of asset pricing models

Cherif Guermat and Mark C. Freeman

International Review of Financial Analysis, 2010, vol. 19, issue 1, 1-9

Abstract: While many recent empirical studies of the CAPM have used conditional beta tests, this technique has recently been shown to have several weaknesses. Here we introduce a new, more robust, net beta test which shares a number of characteristics with conditional beta tests. The method is extended to the multi-factor case when there are mimicking portfolios of assets for the underlying factors, including the Fama-French three-factor model. We demonstrate theoretically, by simulation and using market data that the net beta estimators have lower standard errors than those generated by the standard Fama-MacBeth test.

Keywords: Factor; models; Capital; asset; pricing; Conditional; beta; tests (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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