On comparing zero-alpha tests across multifactor asset pricing models

Lieven De Moor, Geert Dhaene and Piet Sercu

Journal of Banking & Finance, 2015, vol. 61, issue S2, S235-S240

Abstract: Evaluating competing multifactor asset pricing models involves comparing the statistical significance of their mean pricing errors (alphas). Unfortunately, this comparison favors imprecisely estimated models because p-values tend to be higher in more noisy models. To avoid false impressions of relative success at tests for zero mean pricing errors, we develop a notion of comparative p-values and suggest comparing these instead of the raw p-values. This comparison gives more precisely estimated models a fairer chance or, equivalently, quantifies how much easier it is for imprecisely estimated models, by comparison, to pass the test.

Keywords: Asset pricing; Pricing errors; Model comparison; Multifactor models (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:61:y:2015:i:s2:p:s235-s240

DOI: 10.1016/j.jbankfin.2015.08.032

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