Tests of the conditional asset pricing model: further evidence from the cross-section of stock returns
Stuart Hyde and
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Mohamed Sherif: Department of Accountancy, Economics and Finance Riccarton, Heriot-Watt University, United Kingdom, Postal: Department of Accountancy, Economics and Finance Riccarton, Heriot-Watt University, United Kingdom
International Journal of Finance & Economics, 2010, vol. 15, issue 2, 198-211
We analyse the ability of the conditional asset pricing models to explain the cross-sectional variation in UK stock returns. We examine conditional versions of the Sharpe-Linter CAPM and the Fama-French three-factor model. The results indicate that the conditional single-factor model is rejected in all instances. However, there is evidence supportive of the three-factor model. A specification of this model that allows for time variation in conditional covariances, conditionally expected returns and the conditional variance of the market cannot be rejected. Copyright © 2009 John Wiley & Sons, Ltd.
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