Evaluating asset pricing models in the Korean stock market

Soon-Ho Kim, Dongcheol Kim and Hyun-Soo Shin

Pacific-Basin Finance Journal, 2012, vol. 20, issue 2, 198-227

Abstract: This paper evaluates and compares asset pricing models in the Korean stock market. The asset pricing models considered are the CAPM, APT-motivated models, the Consumption-based CAPM, Intertemporal CAPM-motivated models, and the Jagannathan and Wang conditional CAPM model. By using various test portfolios as well as individual stocks, we conduct time-series tests and cross-sectional regression tests based on individual t-tests, the joint F-tests, the Hansen and Jagannathan (1997) distance, and R-squares. Overall, the Fama and French (1993) five-factor model performs most satisfactorily among the asset pricing models considered in explaining the intertemporal and cross-sectional behavior of stock returns in Korea. The Fama and French (1993) three-factor model, the Chen et al. (2010) three-factor model, and the Campbell (1996) model are the next. The results indicate that the two bond portfolios, term spread and default spread, play an important role in explaining stock returns in Korea.

Keywords: Pricing performance; Asset pricing models; CAPM; APT; Consumption-based CAPM; Intertemporal CAPM; Korean stock markets (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:20:y:2012:i:2:p:198-227

DOI: 10.1016/j.pacfin.2011.09.001

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