Asset Pricing Test Using Alternative Sets of Portfolios: Evidence from India

Sudipta Das ()
Additional contact information
Sudipta Das: Indian Institute of Information Technology

Asia-Pacific Financial Markets, 2019, vol. 26, issue 3, No 3, 339-354

Abstract: Abstract Empirical test of asset-pricing models are typically performed on portfolios based on firm-characteristics such as size and book-to-market ratios etc. However, because of their strong factor structure, the characteristic sorted portfolios do not provide a sufficient test for asset pricing models. In recent, the appropriateness to use characteristics sorted portfolios has been debated. Literature suggests various alternative test portfolios sorted by other attributes to improve the empirical tests. To address this issue, we construct three sets of test portfolios sorted by firm beta, volatility, and clustering method to test various asset pricing models. We examine whether portfolios sorted by the above methods can improve the explanatory power of various alternative asset pricing models. Our test results suggest that for unconditional models, the statistical significance and estimated risk premiums depend on the choice of tests portfolios. The conditional model has more power to explain the variation of average returns than the unconditional model.

Keywords: Idiosyncratic volatility; k-Means clustering; Fama–MacBeth regression; Kalman filter (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10690-018-09268-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:apfinm:v:26:y:2019:i:3:d:10.1007_s10690-018-09268-8

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10690/PS2

DOI: 10.1007/s10690-018-09268-8

Access Statistics for this article

Asia-Pacific Financial Markets is currently edited by Jiro Akahori

More articles in Asia-Pacific Financial Markets from Springer, Japanese Association of Financial Economics and Engineering
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().